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Information Systems for Managers




                         Table of Contents

Chapter 1: Foundation of Information Systems (IS).
         1.1 Introduction
         1.2 THE FIRM AND ITS ENVIRONMENT
         1.3 Information Systems in Business.
         1.4 Summary
         1.5 Key words
         1.6 Questions
         1.7 Case
         1.8 References

Chapter 2: IS in Business and components of IS
         2.1 Introduction: IS in Business
         2.2 Types of Information Systems (IS).
         2.3 Transaction Processing System (TPS)
         2.4 Management Information Systems (MIS)
         2.5 Decision Support System (DSS)
         2.6 Group Decision Support System (GDSS)
         2.7 Executive Support Systems (ESS).
         2.8 Summary
         2.9 Key words
         2.10 Case
         2.12 References

Chapter 3: Competing with Information Technology
        3.1 Introduction
        3.2 Expanding the value chain
        3.3 Competing with Information Technology
        3.4 Summary
        3.5 Key words
        3.6 Case
        3.7 References

Chapter 4: Telecommunications and Networks
 4.1 Introduction
 4.2 Telecommunications Technologies
 4.3 Some Important Networking Terminologies
 4.4 Summary
 4.5 Key words
 4.6 Summary questions
4.7    Critical thinking case questions
 4.8    References

Chapter 5: Telecommunications Network Alternatives
         5.1 Introduction
         5.2 Basics of Network
         5.3 TELECOMMUNICATIONS - HARDWARE
         5.4 Summary
         5.5 Key words
         5.6 Summary questions
         5.7 References

Chapter 6: Using IT for strategic Advantage
         6.1 Introduction
         6.2 Importance of IT.
         6.3 Technology for strategic advantage.
         6.4 Summary
         6.5 Key words
         6.6 Summary questions
         6.7 Case
         6.8 References

Chapter 7: Enterprise Business Systems and ERP: The Business Backbone
           7.1 Introduction
           7.2 ERP vendors
           7.3 Advantages and disadvantages of ERP
           7.4 An Example of ERP System
           7.5 Summary
           7.6 Key Words
           7.7 Summary Questions
           7.8 Case
           7.9 References

Chapter 8: Supply chain Management (SCM): The Business Network
           8.1 Introduction
           8.2 Supply Chain Management
           8.3 Understanding Supply chain management.
           8.4 Summary
           8.5 Key Words
           8.6 Summary Questions
           8.7 Case.
           8.8 References

Chapter 9 ELECTRONIC COMMERCE fundamentals, systems, applications and issues
           9.1 Introduction
           9.2 E-Commerce Challenges
           9.3 E-Commerce Supply Chain
           9.4 Types of E-Commerce
           9.5 E-commerce Applications.
           9.6 Electronic Payment Systems
           9.7 Summary
9.8 Key Words
           9.9 Summary Questions
           9.10 Case
           9.11 References

Chapter 10.Implementing Business Systems

10.1 Introduction
10.2 Types of Functional Business Systems
10.3 Summary
10.4 Key Words
10.5 Summary Questions
10.6 Case
10.7 References

Chapter 11.Developing Business IT Solutions and SDLC
11.1 Introduction
11.2 Types of functional business systems
11.3 Initiating systems development
11.4 Information systems planning
11.5 Establishing objectives for systems development
11.6 Systems development and e-commerce
11.7 Systems development life cycles
11.8 The capability maturity model (CMM)
11.9 Systems investigation
11.10. The IS plan
11.11 Summary
11.12 Key words
11.13 Summary questions
11.14 Case
11.15 References

Chapter 12 Security and Ethical Challenges

12.1     Introduction
12.2     Some Security Terms
12.3     Common Threats
12.4     Summary
12.5     Key words
12.6     Summary Questions
12.7     Case
12.8     References

Chapter 13: Security Management of IT

    13.1          Introduction
    13.2          Security Concerns
    13.3          Major Threats
    13.4          Security Management
    13.5          Summary
    13.6          Key Words
13.7        Summary Questions
   13.8        Case
   13.9        References

Chapter 14: Enterprise and Global Management of IT


   14.1        Introduction
   14.2        Global IT management
   14.3        Global Enterprise IT Management
   14.4        Summary
   14.5        Key Words
   14.6        Summary Questions
   14.7        Case
   14.8        References
Part 1 Foundation Concepts




    Chapter   1:   Foundations of Information Systems (IS) in Business
    Chapter   2:   IS in Business and Components of IS
    Chapter   3:   Competing with Information Technology




                                                                         1
Chapter   1

Foundation of Information Systems (IS).

Objectives:

At the end of the chapter you should be able to:
•       Identify what is Information Systems (IS).
•       Identify system, its resources and its environment.
•       Identify with examples of Information Systems (IS).


Introduction.

   The general systems model of the firm provides a good template for analyzing an organization. It
   highlights the elements that should be present and how they should interact. In the same manner,
   the model of the eight environmental elements of a firm provides a good way to come to grips with
   the complexity of how the firm interacts with its environment. An integration of the general systems
   model and the eight-element environmental model provides the foundation for a concept receiving
   much current attention-supply chain management. During recent years, the topic of competitive
   advantage has been the focus of much discussion. Usually, competitive advantage is achieved by
   managing physical resources, but virtual resources can also play a big role. Michael E. Porter is
   credited with shedding the most light on the competitive-advantage concept and contributing the
   ideas of value chains and value systems, which are compatible with taking a systems view of the firm
   and its environment. The firm's executives can use information to gain strategic, tactical, and
   operational advantages. A broad view of competitive advantage recognizes the organizations that
   compete with the firm as well as professionals and staff in other countries that compete with the
   firm's employees for jobs. Multinational corporations often outsource tasks to other organizations in
   order to achieve an economic advantage. Firms that do business globally have special needs for
   information and coordination. A firm's information resources include hardware, software,
   information specialists, users, facilities, databases, and information. Information has four desirable
   dimensions: relevancy, accuracy, timeliness, and completeness.

    Substantial advantages accrue to corporations that achieve coordination through the use of
    information resources. Multinational corporations face significant challenges in the form of
    politically imposed constraints, cultural and communications barriers, technological problems, and
    lack of support from subsidiary managers.




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The task of knowledge management is changing continually. Firms have been using computers since the
1950s, and data formats and storage techniques have changed considerably since then. However, the
data in older legacy systems provide valuable insights into business trends and operations. Most legacy
systems only stored text and numbers, but today images are also an important part of information
systems. Knowledge management recognizes that information represents the firm's knowledge
resource. Knowledge management is required to organize, access, and leverage the firm's data and
information for decision making.

The firm s executives perform strategic planning for the entire organization, the business area, and the
information resources. The chief information officer (also called the chief technology officer) plays a key
role in all types of strategic planning. A strategic plan for information resources identifies the objectives
that the firm's information systems should meet in the coming years and the information resources that
will be necessary to meet those objectives.

THE FIRM AND ITS ENVIRONMENT

A firm is a physical system that is managed through the use of a virtual system. The physical system of
the firm is an open system in that it interfaces with its environment. A firm takes resources from its
environment, transforms the resources into products and services, and returns the transformed
resources to the environment.

THE PHYSICAL RESOURCE FLOW The firm's physical resources include personnel, material, machines,
and money. Personnel are hired by the firm, transformed to higher skill levels through training and
experience, and eventually leave the firm. Material enters the firm in the form of raw inputs and is
transformed into finished goods, which are then sold to the firm's customers. Machines are purchased,
used, and eventually scrapped or traded in on newer machines. Money enters the firm in the form of
sales receipts, shareholder investments, and loans and is transformed into payments to suppliers, taxes
to the government, and returns to stockholders. While in the firm, the physical resources are used to
produce the products and services the firm provides to its customers.

THE FIRM'S CONTROL MECHANISM The elements that enable the firm to control its own operations
include (1) the performance standards the firm must meet if it is to accomplish its overall objectives (2)
the firm's management and (3) an information processor that transforms data into information.

THE FEEDBACK Loop The feedback loop is composed of the virtual resources. Data are gathered from
the firm and from the environment and entered into the information processor, which transforms it into
information. The information is made available to managers, who make decisions to affect necessary
changes in the physical system. Management is guided in its decision making by the firm's performance
standards. These performance standards can also be used by the information processor to determine
when the firm is not performing as planned.




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Information Systems in Business

The general systems model of the firm makes it easy to see the importance of the environment to a
firm's success. A firm exists for the purpose of providing products and services that meet environmental
needs. Equally important, a firm cannot function without the resources that the environment provides.

The environment varies from firm to firm. A bank has a different environment than does a sporting
goods store or a church. However, we can identify eight major elements that exist in the environments
of all firms.' These environmental elements are organizations and individuals that exist outside the firm
and that have a direct or indirect influence on it. These eight elements exist in a larger system called a
society. Suppliers, also called vendors, supply the materials, machines, services, people, and information
that the firm uses to produce its products and services. These products and services are marketed to the
firm's customers. Labor unions are organizations of both skilled and unskilled workers for certain trades
and industries. The financial community consists of institutions such as banks and other lending
institutions that influence the financial resources that are available to the firm. Stockholders and owners
are the persons who invest money in the firm; they are the ultimate owners of the firm. Competitors
include all of the organizations that compete with the firm in its marketplace. The government, on the
national, state or province, and local levels, provides constraints in the form of laws and regulations and
also provides assistance in the form of purchases, information, and funds. The global community is the
geographic area where the firm performs its operations. The firm demonstrates its responsibility to the
global community by respecting the natural environment, providing products and services that
contribute to quality of life, and conducting its operations in an ethical manner.

The firm is connected to its environmental elements by environmental resource flows. Some of the
resources flow more frequently than others does. Common flows include information flow from
customers, material flow to customers, money flow to stockholders, and raw materials flow from
suppliers. Less frequent flows include money flow from the government (such as for research), material
flow to suppliers (returned merchandise), and personnel flow to competitors (employees "pirated" by
other firms).

Not all resources flow between the firm and all its environmental elements. For example, machines
normally do not flow from the firm to stockholders, and money should not flow to competitors. The only
resource that connects the firm with all the elements is information, and the firm strives to make the
information connection with competitors a one- way flow.

Let us see how we can manage supply chain systems, electronic system and enterprise systems at basic
level.

The pathway that facilitates the flow of physical resources from suppliers to then to customers is called
the supply chain. The flow of resources through the supply chain must be managed to ensure that it
occurs in a timely and efficient manner; this process is called supply chain management. Supply chain
management consists of the following activities:



                                                                                                              4
•       Forecasting customer demand

•       Scheduling production

•       Establishing transportation networks

•       Ordering replenishment stock from suppliers

•       Receiving stock from suppliers

•       Managing inventory-raw materials, work-in-process, and finished goods

•       Executing production

•       Transporting resources to customers

•       Tracking the flow of resources from suppliers, through the firm, and to customers

As resources flow through the supply chain they can be tracked electronically, step-by-step. As
resources move through the supply chain, actions are recorded in computer terminals located at
suppliers' sites, in the firm's receiving area, in the firm's inventory and production areas, in the firms'
shipping areas, in the vehicles used by the transporters, and at customers’ sites. Data are entered into
the terminals either by keyed input, bar-code scanning, or radio frequency ID. As the data are captured,
the firm's information system is updated to reflect the current location of the resource being tracked.
The ability to track the flow of the resources as it occurs contributes to supply chain management.

Supply Chain Management and Enterprise Resource Planning Systems

Supply chain management is only one aspect of enterprise resource planning ( ERP) systems, yet it can
play a crucial role in operations. The use of the same ERP system vendor (SAP, Oracle, or some other) by
members in the supply chain helps to facilitate the flow of supply chain information. However, the cost
of ERP systems can be high, and not every member in a supply chain may wish to purchase ERP
software. When one member of a supply chain has substantial power over the other members, such
as a large retailer like Wal-Mart has over its suppliers, the more powerful member can apply pressure on
the other members to use the same ERP software. In that case, the transfer of data from one member to
another is facilitated and all members benefit, but the most powerful member of the supply chain
receives the most benefit.

As firms go about meeting the product and service needs of their customers. Firms strive to obtain an
advantage over their competitors. They can achieve this advantage by providing products and services
at a lower price, providing higher quality products and services, and meeting the special needs of certain
market segments.

What is not always obvious is the fact that a firm can also achieve competitive advantage through the
use of its virtual resources. In the information systems field, competitive advantage refers to the use of




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information to gain leverage in the marketplace. Note that the firm's managers use virtual as well as
physical resources in meeting the strategic objectives of the firm.


Summary:
A firm's information resources include hardware, software, information specialists, users, facilities,
databases, and information. Information has four desirable dimensions: relevancy, accuracy, timeliness,
and completeness. The firm s executives perform strategic planning for the entire organization, the
business area, and the information resources. The chief information officer (also called the chief
technology officer) plays a key role in all types of strategic planning. A strategic plan for information
resources identifies the objectives that the firm's information systems should meet in the coming years
and the information resources that will be necessary to meet those objectives. The general systems
model of the firm makes it easy to see the importance of the environment to a firm's success. A firm
exists for the purpose of providing products and services that meet environmental needs. Equally
important, a firm cannot function without the resources that the environment provides.

As resources flow through the supply chain they can be tracked electronically, step-by-step. As
resources move through the supply chain, actions are recorded in computer terminals located at
suppliers' sites, in the firm's receiving area, in the firm's inventory and production areas, in the firms'
shipping areas, in the vehicles used by the transporters, and at customers’ sites. Supply chain
management is only one aspect of enterprise resource planning ( ERP) systems, yet it can play a crucial
role in operations. The use of the same ERP system vendor (SAP, Oracle, or some other) by members in
the supply chain helps to facilitate the flow of supply chain information. However, the cost of ERP
systems can be high, and not every member in a supply chain may wish to purchase ERP software.


 Keywords:
Information Systems: collections of all components of hardware, software, database, networks and
people.
System: Collections of interrelated components
Supply chain: The pathway that facilitates the flow of physical resources from suppliers to then to
customer’s electronic systems.
Enterprise Resource Planning (ERP): Firms internal data Management, integrating all internal business
processes.

 Summary Questions.
            1.   What do you understand by Information Systems?
            2.   Explain the Environment in the information systems.
            3.   Explain the information systems in Business.
            4.   List some information systems that you are aware of?



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Case- 1:
  STUDY
Roberts Company is a worldwide leader in financial management and employing 50, people in 36
countries and territories. It is into brokerage, investment banking, financing, wealth management,
advisory, asset management, insurance, lending, and other related products and services to private,
institutional, and government clients with assets of $1.6 trillion.

Over the last five years, that IT infrastructure has played a major role in the company’s gains. Like many
financial institutions, Roberts Company has had to modernize its technology infrastructure in order to
remain competitive. In modernizing its technology, Roberts Company had to make choices regarding its
legacy computers and applications. Internet-based applications that gave customers access to their
portfolios and tools to work with them were a key to remaining competitive. But these applications did
not use mainframe-based software. Roberts Company had initially tried to avoid the costs by copying
the data stored in its mainframe installation into Oracle, Sybase, or Microsoft SQL Server databases. In
those formats, the data were compatible with server-based applications. However, that technique was
not entirely satisfactory. Copying large quantities of data often introduces errors based on disk failures
and space issues. The project team prohibited the new platform from requiring changes to program
code on the mainframe or hindering its operation in any respect. The team did not want to alter the
mainframe in any way because of its track record, its complexity, and the fact that there was likely no
one on staff who knew the inner workings of its deep-rooted code.

Case Questions.

    1. Why did the firm need to update its IT infrastructure?
    2. What is the relationship of information technology to Robert Company’s business strategy?

References
Avisc. David "Information Systems in the MBA Curriculum: An lnternational Perspective."
Communications of the AlS 11, Article 6 (January 2003),

Baskerville Richard L. and Michael D. Myers. "Information Systems as a Reference Discipline." MIS
Quarterly 26, no. 1 (March 2002).

Brvnjolflsou, Erik. "The IT Productivity Gap." Optimize Magazine 21 (July 2003).

Carr, Nicholas. "IT Doesn't Matter." Harvard Business Review (May 2003).

Dedrick, Jason, Vijay Gurbaxani, and Kenneth L. Kraemer."Information Technology and Economic
Performance: A Critical Review of the Empirical Evidence," Center for Research on Information
Technology and Organizations, University of California, Irvine (December 2001).

Laudon, Kenneth C. Computers and Bureaucratic Reform. New York: John Wiley and Sons (1974).

Quinn, Francis J. "e Business Evangelist; An Interview with Erik Brynjolfsson." Supply Chain
Mal1agemcnt Review (May June 20(6).


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Ross, Jeanne Wand Peter Weill. "Six IT Decisions Your IT People Shouldn't Make." Harvard Busil1css
Review (November 2002).



Chapter 2:      IS in Business and components of IS
Objectives:

At the end of the chapter you should be able to:
•       Identify the concepts of Information Systems (IS).
•       Identify the types of IS.
•       Identify with examples of Transaction Processing System (TPS), Management Information
Systems (MIS), Decision Support System (DSS), and Executive Support Systems (ESS).
•       Identify the process and reports of Transaction Processing System (TPS), Management
Information Systems (MIS), Decision Support System (DSS), and Executive Support Systems (ESS).


Introduction

At a micro level, technology makes it possible to create new forms of organizations. Managers design
and redesign organizations all the time. The decision you make to open a branch office and give it
responsibility for sales in a region is an organization design issue. If you undertake a new project by
creating a task force that includes members from around the world and that will work virtually, you have
designed a temporary organization. One of the most difficult questions to answer is, "What do
managers do?" For the first three or four decades of information technology, IT did little to help
managers in their day-to- day tasks, often because IT staff did not understand managers. Few
management information systems existed, though many companies claimed to have them. The last
decade witnessed the development of groupware, designed to support both the daily tasks of
management and coordination, and to provide a repository of organizational intelligence.

Management researchers have emphasized the decision-making nature of management since the 1950s.
Certainly, managers are expected to make decisions in many different domains. Important decisions
include funding R&D, product development. The decision to introduce a new product. Many managerial
decisions revolve around issues of resource allocation. Almost every organization is confronted with
limited resources and competing demands for them.

A role that managers often face is as a disturbance handler. Disputes and problems in the organization
find their way to a manager who is in a position to resolve them. These disturbances may come from
inside the firm, or they may be prompted by problems suppliers or customers. Managers also deal
with information in their jobs and function as the spokesperson for the firm. A good manager scans the
environment for competitive actions, threats, and opportunities. Today, companies are also dependent
on government regulations and actions. Many communications and much purposeful managerial work
revolve around information processing. Individuals frequently communicate to obtain new


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information. When making a decision, the manager must process information to determine the
appropriate course of action to take. Suppliers and customers want information. The securities industry
seeks information about company plans and performance.

The technology described next is designed to support people in the organization in the tasks they are
expected to perform. This technology lets managers and other workers redesign their tasks. It provides a
great deal of flexibility and a number of alternatives for the flow of work, communications, and
coordination. Groupware is aimed at what a manager does: It supports members of the organization
who have a common task and operate in a shared environment.

Hence there is a need to categorise information systems. A System is a collection of inter related
components. An Information System (IS) is an integrated collection of Hardware, Software, Databases,
Networks /Communications and People required managing the same. Examples of IS include Enterprise
systems, Supply Chain Systems etc.

Types of Information Systems

An organization operates in an ever-increasing competitive and global environment. The successful
organization focuses on the efficient execution of its processes, customer service, and speed to market.
Enterprise applications provide an organization with a consolidated view of its operations across
different functions, levels, and business units. Enterprise applications allow an organization to efficiently
exchange information among its functional areas, business units, suppliers, and customers. Every
business has manual and automated transaction processing systems (TPSs), which process the detailed
data essential to update records about the fundamental business operations of the organization. These
include order entry, inventory control, payroll, accounts payable, accounts receivable, and general
ledger etc. The input to these systems includes basic business communication such as customer orders,
purchase orders, receipts, time cards, invoices, and customer payments. The effect of processing
business transactions is that the firm’s records are rationalized to reflect the status of the action at the
time of the last processed transaction. Automated processes consist databases, telecommunications,
people, procedures, software, and hardware devices used to process transactions. The activities include
data collection, data edit, data correction, data manipulation, data storage and document production.
Today’s business systems are built to electronically coordinate all the business functions. The sales
function begins the process by carrying out a sales order, electronically inputting the data into the
system. The sales system updates daily sales totals and decreases inventory. The accounting system
electronically receives the order and runs a credit check. If the credit is not approved, then the business
system sends an exception notification to an accounting specialist and the sales person. If credit is
approved, then order is transformed to the manufacturing and production system and product assembly
begins. When the product is finished, electronic shipping documents are prepared and logistics is
notified. When the product is shipped, electronic notifications are sent to Sales, Manufacturing and
Production, Accounting, and the customer. The system electronically bills the customer.

From the above information, it is prudent that a business system need to function for top, middle and
lower level of management. That is strategic level, managerial level and operational/transactional level.




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Transaction Processing Systems - TPS

For most organizations, TPSs support the routine, day-to-day activities that occur in the normal course
of business that help a company add value to its products and services. Depending on the customer,
value may mean lower price, better service, higher quality, or uniqueness of product. By adding a
significant amount of value to their products and services, firms ensure further organizational success.
Because the TPSs often perform activities related to customer contacts – like order processing and
invoicing – these information systems play a critical role in providing value to the customer. For
example, by capturing and tracking the movement of each package, shippers like Federal Express and
United Parcel Service (UPS) are able to provide timely and accurate data on the exact location of a
package. Shippers and receivers can access an on-line database and, by providing the air bill number of a
package, find the package’s current location. If the package has been delivered, they can see who signed
for it (especially useful in large firms where packages can become lost in internal distribution systems
and mailrooms). Such a system provides the basis for added value through improved customer service.

When computerized transaction processing systems first evolved, only one method of processing was
available. All transaction were collected in groups, called batches, and processed together. With batch
processing systems, business transactions are accumulated over a period of time and prepared for
processing as a single unit or batch. The time period during which transactions are accumulated is
whatever length of time is needed to meet the needs of the users of that system. For example, it may be
important to process invoices and customer payments for the accounts receivable system daily. On the
other hand, the payroll system may receive time cards and process them biweekly to create checks and
update employee earnings records as well as to distribute labour costs.

        Today’s computer technology allows another processing method, called on-line, real-time, or
on-line transaction processing (OLTP). As soon as the input is available, a computer program performs
the necessary processing and updates the records affected by that reflect the current status. When you
make an airline reservation, for instance, the transaction is processed and all databases, such as seat
occupancy and accounts receivable, are updated immediately. This type of processing is absolutely
essential for businesses that require data quickly and update it often, such as airlines, ticket agencies,
and stock investment firms. Many firms have found that OLTP helps them provide faster, more efficient
service – one way to add value to their activities in the eyes of the customer. Increasingly, firms are
using the Internet to perform many OLTP functions. A third type of transaction processing, called on-line
entry with delayed processing is a compromise between batch and on-line processing. With this type of
system, transactions are entered into the computer system when they occur, but they are not processed
immediately. For example, when you call a toll-free number and order a product, your order is typically
entered into the computer when you make the call. However, the order may not be processed until that
evening after business hours.

         Even though the technology exists to run Transaction Processing Systems applications using
on-line processing, it is not done for all applications. For many applications, batch processing is more
appropriate and cost-effective. Payroll transactions and billing are typically done via batch processing.
Specific goals of the organization define the method of transaction processing best suited for the various
applications of the company. Because of the importance of transaction processing organizations expect
their TPSs to accomplish a number of specific objectives, including the following:




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The primary objective of any TPS is to capture, process, and store transactions and to produce a variety
of documents related to routine business activities. These business activities can be directly or indirectly
related to selling products and services to customers. Processing orders, purchasing materials,
controlling inventory, billing customers, and paying supplier and employees are all business activities
that result from customer orders. These activities result in transactions that are processed by the TPS.

One objective of any TPS is error-free data input and processing. Even before the introduction of
computer technology, employees visually inspected all documents and reports introduced into or
produced by the TPS. Because humans are fallible, the transactions were often inaccurate, resulting in
wasted time and effort and requiring resources to correct them. An editing program, for example,
should have the ability to determine that an entry that should read “40 hours ” is not entered as “ 400
hours” or ‘4000 hours” because of a data entry error.

An important component of data integrity is to avoid fraudulent transactions. E-commerce firms face
this problem when accepting credit or debit card information over the Internet. How can these firms
make sure that the people making the purchases are who they say they are? One approach is to use a
digital certificate. A digital certificate is a small computer file that serves as both an Id card and a
signature. Some believe that digital certificates, which use complex mathematical codes, are almost
fraud proof.


Management Information Systems - MIS

 Management information systems (MIS) can often give firms a competitive advantage by providing
 the right information to the right people in the right format and at the correct time. In many cases,
 firms and individuals are willing to pay firms for this type of information. The primary purpose of an
 MIS is to help an organization achieve its goals by providing managers with insight into the regular
 operations of the organization so that they can control, organize, and plan more effectively and
 efficiently. One important role of the MIS is to provide the right information to the right person in
 the right fashion at the right time. In short, an MIS provides managers with information, typically in
 reports, that support effective decision making and provides feedback on daily operations. Note that
 business transactions can enter the organization through traditional methods or via the Internet or an
 extranet connecting customers and suppliers to the firm's transaction processing systems. The use of
 management information systems spans all levels of management. That is, they provide support to and
 are used by employees throughout the organization.

 Data that enters an MIS originates from both internal and external sources. The most significant
 internal source of data for an MIS is the organization's various TPSs and ERP systems and related
 databases. One of the major activities of a TPS is to capture and store the data resulting from
 ongoing business transactions. With every business transaction, various TPS applications make
 changes to and update the organization's databases. For example, the billing application helps
 keep the accounts receivable database up to date so that managers know who owes the company
 money. These updated databases are a primary internal source of data for the management
 information system. In firms that have implemented an ERP system, the collection of databases
 associated with this system is an important source of internal data for the MIS. Other internal data
 comes from specific functional areas throughout the firm.



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External sources of data can include customers, suppliers, competitors, and stockholders, whose
data is not already captured by the TPS, as well as other sources, such as the Internet. In addition,
many firms have implemented extranets to link them to these entities and allow for the exchange of
data and information.

    The Management information systems (MIS) uses the data obtained from these sources and
processes it into information more usable to managers, primarily in the form of predetermined
reports. For example, rather than simply obtaining a chronological list of sales activity over the past
week, a national sales manager might obtain her organization's weekly sales data in a format that
allows her to see sales activity by region, by local sales representative, by product, and even in
comparison with last year's sales.

The output of most management information systems is a collection of reports that are distributed
to managers. Data mining allows a company to filter through a vast amount of data stored in
databases, data warehouses, and data marts to produce a variety of reports, including scheduled
reports, key-indicator reports, demand reports, exception reports, and drill down reports.

Scheduled reports are produced periodically, or on a schedule, such as daily, weekly, or monthly. For
example, a production manager could use a weekly summary report that lists total payroll costs to
monitor and control labor and job costs. A manufacturing report generated once a day to monitor
the production or a new item is another example of a scheduled report. A key-indicator report
summarizes the previous day's critical activities and is typically available at the beginning of each
workday. These reports can summarize inventory levels, production activity, sales volume, and the like.
Key-indicator reports are used by managers and executives to take quick, corrective action on significant
aspects of the business. Demand reports are developed to give certain information upon request. In
other words, these reports are produced on demand. For example, an executive may want to know the
production status of a particular item—a demand report can be generated to give the requested
information. Suppliers and customers can also use demand reports. FedEx, for example, provides
demand reports on its Web site to allow its customers to track packages from their source to their final
destination. On average, the bar code of a typical FedEx package is scanned a mind-boggling 23 times as
it travels through the FedEx system. Penske Logistics uses wireless terminals to provide customers with
critical delivery information on demand. Other examples of demand reports include reports requested
by executives to show the hours worked by a particular employee, total sales to date for a product, and
so on. Exception reports are reports that are automatically produced when a situation is unusual or
requires management action. For example, a manager might set a parameter that generates a
report of all inventory items with fewer than the equivalent of 5 days of sales on hand. This unusual
situation requires prompt action to avoid running out of stock on the item. The exception report
generated by this parameter would contain only items with fewer than 5 days of sales in inventory. As
with key-indicator reports, exception reports are most often used to monitor aspects important to an
organization's success. In general, when an exception report is produced, a manager or executive
takes action. Drill down reports provides increasingly detailed data about a situation. Through the use
of drill down reports, analysts are able to see data at a high level first (similar to a bag of cookies), then
at a more detailed level (say, an Oreo), and then a very detailed level (an Oreo double-filling cookie's
components).




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Management information system reports can help managers develop better plans, make better
decisions, and obtain greater control over the operations of the firm. It is important to recognize that
various types of reports can overlap.

CHARACTERISTICS OF A MANAGEMENT INFORMATION SYSTEM

In general, management information systems perform the following functions:
• Provide reports with fixed and standard formats. For example, scheduled reports for inventory control
    may contain the same types of information placed in the same locations on the reports. Different
    managers may use the same report for different purposes.
• Produce hard-copy and soft-copy reports. Some MIS reports are printed on paper and are
    considered hard-copy reports. Most output soft copy, using visual displays on computer
    screens. Soft-copy output is typically format in a report like fashion. In other words, a manager
    might be able to call a MIS report up directly on the computer screen, but the report would
    sti appear in the standard hard-copy format. Hard copy is still the most o used form of the MIS
    report.
• Use internal data stored in the computer system. MIS reports use primarily internal sources of data
    that are contained in computerized databases. Some use external sources of data about
    competitors, the marketplace, and s The Internet and extranets are frequently used sources for
    external data.
• Allow end users to develop their own custom reports. Although analysts and programmers may be
    involved in developing and implementing complex MIS reports that require data from many sources,
    end users are increasingly developing their own simple programs to query a database and
    produce basic reports. This capability, however, can result in several end users developing the same
    or similar reports, which can result in more total time expended and additional storage
    requirements, compared with having an analyst develop one report for all users.
• Require user requests for reports developed by systems personnel. When information systems
    personnel develop and implement MIS reports, a formal request to the information systems
    department may be required. If a manager, for example, wants a production report to be used by
    several people in his or her department, a formal request for the report is often required. End
    user-developed reports require much less formality.

Most organizations are structured along functional lines or areas. This functional structure is usually
apparent from an organization chart, which typically shows vice presidents under the president. Some
of the traditional functional areas are accounting, finance, marketing, personnel, research and
development (R&D), legal services, operations/production management, and information systems.

FINANCIAL MANAGEMENT INFORMATION SYSTEMS

A financial management information system provides information not only for managers but also for a
broader set of people who need to make better decisions on a daily basis. Finding opportunities and
quickly identifying problems can mean the difference between a business's success and failure. Specifically,
the financial MIS performs the following functions:
  • Integrates financial and operational information from multiple sources, including the
      Internet, into a single MIS.
  • Provides easy access to data for both financial and nonfinancial users, often through use of the
      corporate intranet to access corporate Web pages of financial data and information.


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• Makes financial data available on a timely basis to shorten analysis turnaround time.
  • Enables analysis of financial data along multiple dimensions—time, geography, product, plant,
    customer.

    In addition to providing information for internal control and management, financial MISs often
 are required to provide information to outside individuals and groups, including stockholders and
 federal agencies. Public firms are required to disclose their financial results to stockholders and
 the public. The federal government also requires financial statements and information systems.
 As a result of antiterrorism legislation signed into law by President Bush, financial service firms
 must now implement new information systems designed to make it easier for law enforcement
 agencies to find and freeze assets owned by suspected terrorists. The legislation also attempts to
 uncover money laundering.

    Depending on the organization and its needs, the financial MIS can include both internal and
external systems that assist in acquiring, using, and controlling cash, funds, and other financial
resources. These subsystems of the financial MIS have a unique role in adding value to a company's
business processes. For example, a real estate development company might use a financial MIS
subsystem to help it use and manage funds. Suppose the firm takes $10,000 deposits on con-
dominiums in a new development. Until construction begins, the company will be able to invest these
surplus funds. By using reports produced by the financial MIS, finance staff can analyze investment
alternatives. The company might invest in new equipment or purchase global stocks and bonds. The
profits generated from the investment can be passed along to customers in different ways. The
company can pay stockholders dividends, buy higher quality materials, or sell the condominiums at a
lower cost.

    Other important financial subsystems include profit/loss and cost accounting, and auditing. Each
subsystem interacts with the TPS in a specialized way and has information outputs that assist financial
managers in making better decisions. These outputs include profit/loss and cost accounting reports,
internal and external auditing reports, and uses and management of funds reports.

Two specialized financial functional systems are profit/loss and cost systems, which organize revenue and
cost data for the company. Revenue and expense data for various departments is captured by the TPS
and becomes a primary internal source of financial information for the MIS.

Auditing involves analyzing the financial condition of an organization and determining whether financial
statements and reports produced by the financial MIS are accurate. Because financial statements, such
as income statements and balance sheets etc used by so many people and organizations (investors,
bankers, insurance firms, federal and state government agencies, competitors, and customers), sound
auditing procedures are important. Auditing can reveal potential fraud, such as credit card fraud. It can
also reveal false or misleading information. Internal auditing is performed by individuals within the
organization. For example, the finance department of a corporation may use a team of employees to
perform an audit.

Another important function of the financial MIS is funds usage and manage ment. Firms that do not
manage and use funds effectively often have lower profits or face bankruptcy. To help with the funds
usage and management, some banks are backing a new computerized payment system called
Straight-Through Processing. “The new system has the potential to clear payments in a day instead


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of several days or more. Outputs from the funds usage and management subsystem, when combined
with other subsystems of the financial MIS, can locate serious cash flow problems and help the
organization increase profits.

    Internal uses of funds include additional inventory, new or updated plants and equipment,
additional labor, the acquisition of other firms, new computer systems, marketing and advertising, raw
materials, land, investments in new products, and research and development. External uses of funds are
typically investment related. On occasion, a company might have excess cash from sales that is placed
into an external investment. External uses of funds often include bank accounts, stocks, bonds, bills,
notes, futures, options, and foreign currency.

 MANUFACTURING MANAGEMENT INFORMATION SYSTEMS

More than any other functional area, manufacturing has been revolutionized by advances in
technology. As a result, many manufacturing operations have been dramatically improved over the
last decade. Also, with the emphasis on greater quality and productivity, having an efficient and
effective manufacturing process is becoming even more critical. The use of computerized systems is
emphasized at all levels of manufacturing— from the shop floor to the executive suite. The use of the
Internet has also streamlined all aspects of manufacturing.

  The objective of the manufacturing MIS is to produce products that meet customer needs—from
the raw materials provided by suppliers to finished goods and services delivered to customers—at the
lowest possible cost. Cunningham Motor Co., for example, is attempting to manufacture a pricey sports
coupe with a 600 horsepower engine that sells for about S250, 000. Started by Robert Lutz, a former
vice president of Chrysler, the company will not put one penny into manufacturing facilities. As raw
materials are converted to finished, goods, the manufacturing MIS monitors the process at almost
every stage. New bar codes called smart labels could make this process easier. The smart labels, made
of chips and tiny radio transmitters, allow materials and products to be monitored through the entire
manufacturing process. Procter & Gamble, Gillette, Wal-Mart, and Target have helped to fund research
into this new manufacturing MIS. Car manufacturers, which convert raw steel, plastic, and other
materials into a finished automobile, also monitor the manufacturing process. Auto manufacturers
add thousands of dollars of value to the raw materials they use in assembling a car. If the manufacturing
MIS also lets them provide customized paint colors on any of their models, it has further added value
(although less tangible) by ensuring a direct customer fit. In doing so, the MIS helps provide the
company the edge that can differentiate it from competitors. The success of an organization can
depend on the manufacturing function. Some common information subsystems and outputs used in
manufacturing are discussed next.

During the early stages of product development, engineering departments are involved in many
aspects of design. The size and shape of parts, the way electrical components are attached to
equipment, the placement of controls on a product, and the order in which parts are assembled into
the finished product are decisions made with the help of design and engineering departments. In
some cases, computer-assisted design (CAD) assists this process. CAD can be used to determine how an
airplane wing or fuselage will respond to various conditions and stresses while in use. CAD is also used
in the automotive industry. The data from design and engineering can also be used to identify
problems with existing products and help develop new products. For example, Boeing uses a CAD
system to develop a complete digital blueprint of an aircraft before it ever begins its manufacturing


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process. As mock-ups are built and tested, the digital blueprint is constantly revised to reflect the
most current design. Using such technology helps Boeing reduce its manufacturing costs and the time
to design a new aircraft. Lockheed Martin, a defense contractor, used its design and engineering
departments to help obtain a $200 billion contract from the Pentagon to build fighter jets for the
military. The Joint Strike Fighter contract, the largest defense contract in history, uses information
systems to help design, engineer, and manufacture these sophisticated military jets.

Scheduling production and controlling inventory are critical for any manufacturing company. The
overall objective of master production scheduling is to provide detailed plans for both short-term and
long-range scheduling of manufacturing facilities. Master production scheduling software
packages can include forecasting techniques that attempt to determine current and future
demand for products and services. After current demand has been determined and future demand
has been estimated, the master production scheduling package can determine the best way to use
the manufacturing facility and all its related equipment. The result of the process is a detailed plan
that reveals a schedule for every item that will be manufactured.

   An important key to the manufacturing process is inventory control. Great strides have been
made in developing cost-effective inventory control programs and software packages that allow
automatic reordering, forecasting, generation of shop documents and reports, determination of
manufacturing costs, analysis of budgeted costs versus actual costs, and the development of master
manufacturing schedules, resource requirements, and plans. A furniture company, for example, uses
an approach, called "simple, quick, and affordable (SQA)" to keep inventory levels and costs low.
Once an order is received, it is broken down into the inventory parts that are needed to successfully
complete the order on time. An SQA Web site is used to make sure that the needed inventory is
available to complete the order. Procter & Gamble, which produces consumer products that range
from Pampers to Pepto-Bismol, uses quick-response inventory control systems to speed products to
market. According to a company spokesman, "A key benefit for consumers is that the products are
fresher." In another case, Ford Motor Company decided to use UPS Logistics to help the company
speed the delivery of parts to factories and finished cars to dealerships.19 The new inventory control
system has reduced by four days the time it typically takes to ship a finished vehicle to a dealership.
But more importantly, the new system has also reduced vehicle inventory by about $1 billion, saving
the company $125 million in annual inventory carrying costs, which dramatically improves Ford's
profitability. Many inventory control techniques like Ford's attempt to minimize inventory related
costs.

Manufacturing resource planning (MRPII) refers to an integrated, com-panywide system based on
network scheduling that enables people to run their business with a high level of customer service and
productivity, while lowering costs and inventories. MRPII is broader in scope than MRP; thus, the latter
has been dubbed "little MRP." MRPII places a heavy emphasis on planning. This helps firms ensure that
the right product is in the right place at the right time.

Just-in-time (JIT) inventory and manufacturing is an method that maintains inventory at the lowest
levels without sacrificing the availability of finished goods. With this approach, inventory and materials
are delivered just before they are used in a product. A JIT inventory system would arrange for a car
windshield to be delivered to the assembly line only a few moments before it is secured to the
automobile, rather than having it sitting around the manufacturing facility while the car's other



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components are being assembled. Although JIT has many advantages, it also renders firms more
vulnerable to process disruptions.

Managers can use a number of technologies to control and streamline the manufacturing process.
For example, computers can be used to directly control manufacturing equipment, using systems
called computer-assisted manufacturing (CAM). CAM systems can control drilling machines,
assembly lines, and more. Some of them operate quietly, are easy to program, and have self-diagnostic
routines to test for difficulties with the computer system or the manufacturing equipment.

Computer-integrated manufacturing (CIM) uses computers to link the components of the
production process into an effective system. CIM's goal is bring together production, including order
processing, product design, manufacturing, inspection and quality control, and shipping. CIM
systems also increase efficiency by coordinating the actions of various production units. In some
areas, CIM is used for even broader functions. For example, it can be used to integrate all
organizational subsystems, not just the production systems. In automobile manufacturing, design
engineers can have their ideas evaluated by financial managers before new components are built to
see whether they are economically viable, saving not only time but also money.

FMS is normally implemented using computer systems, robotics, and other automated
manufacturing equipment. New product specifications are fed into the computer system, and the
computer then makes the necessary changes. Although few firms have a fully implemented FMS,
recently use of the overall FMS approach has increased.

With increased pressure from consumers and a general concern for productivity and high quality,
today's manufacturing organizations are placing more emphasis on quality control, a process that
ensures that the finished product meets the customers' needs. For a continuous process, control
charts are used to measure weight, volume, temperature, or similar attributes. Then, upper and
lower control chart limits are established. If these limits are exceeded, the manufacturing equipment
is inspected for possible defects or potential problems. When the manufacturing operation is not
continuous, sampling can allow the producer or consumer to review and accept or reject one or
more products. Acceptance sampling is used for items as simple as nuts and bolts or as complex as
airplanes. The development of the control chart limits and the specific acceptance sampling plans can
be fairly complex. So, quality-control software programs have been used to generate them.

Whether the manufacturing operation is continuous or discrete, the results from quality control are
analyzed closely to identify opportunities for improvements. Teams using the total quality
management (TQM) or continuous improvement process often analyze this data to increase the
quality of the product or eliminate problems in the manufacturing process. The result can be a cost
reduction or increase in sales.

Information generated from quality-control programs can help workers locate problems in
manufacturing equipment. Quality-control reports can also be used to design better products. With
the increased emphasis on quality, workers should continue to rely on the reports and outputs from
this important application.

 MARKETING MANAGEMENT INFORMATION SYSTEMS



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A marketing MIS supports managerial activities in product development, distribution, pricing
decisions, promotional effectiveness, and sales forecasting. Marketing functions are increasingly
being performed on the Internet. A number of firms are developing Internet marketplaces to
advertise and sell products. Customer relationship management (CRM) programs, available from
some ERP vendors, help a company manage all aspects of customer encounters. CRM software can
help a company collect customer data, contact customers, educate customers on new products, and
sell products to customers through an Internet site. Crane Engineering, an industrial equipment
distributor in Kimberly, Wisconsin, uses CRM to help manage customer interactions. Subsystems for
the marketing MIS include marketing research, product development, promotion and advertising,
and product pricing. These subsystems and their outputs help marketing managers and executives
increase sales, reduce marketing expenses, and develop plans for future products and services to
meet the changing needs of customers.

Surveys, questionnaires, pilot studies, and interviews are popular marketing research tools. The
purpose of marketing research is to conduct a formal study of the market and customer preferences.
Marketing research can identify prospects (potential future customers) as well as the features that
current customers really want in a good or service (such as green ketchup or vanilla-flavored cola). Such
attributes as style, color, size, appearance, and general fit can be investigated through marketing
research. Pricing, distribution channels, guarantees and warranties, and customer service can also be
determined. Once entered into the marketing Management information systems (MIS), data
collected from marketing research projects is manipulated to generate reports on key indicators
like customer satisfaction and total service calls. Reports generated by the marketing MIS help
marketing managers are better informed to help the organization meet its performance goals. The
parts division of Hyundai Motor America, for example, uses marketing research and software to predict
the demand for car parts. The software from Demand Management helped the company reduce
delivery time for key auto parts by 20 percent. Other firms, including Colgate-Palmolive and Unilever,
also use sophisticated software and marketing research data to forecast demand for their products.
Demand forecasts for products and services are also critical to make sure raw materials and supplies
are properly managed.

The Internet is changing the way many firms think about marketing research. Conventional
methods of collecting data often cost millions of dollars-For a fraction of these costs, firms can put
up Internet information server and launch discussion groups on topics that their customers care
about. These information sites must be well designed, or they won't be visited, but a frequently visited
site can provide feedback worth a fortune. Firms that are viewed as credible, not just clever, will win
enormous advantages. Presence and intelligent interaction, not just advertising, are the keys that will
unlock commercial opportunities on-line. Some people, however, consider Internet marketing
research to be a nuisance or even harmful. Some firms gather information on customers using cookies,
which collect data on people's Internet surfing habits, and sell it to others. Product development
involves the conversion of raw materials into finished goods and services and focuses primarily on
the physical attributes of the product. Many factors, including plant capacity, labor skills, engineering
factors, and materials are important in product development decisions. In many cases, a computer
program is used to analyze these various factors and to select the appropriate mix of labor, materials,
plant and equipment, and engineering designs. Make-or-buy decisions can also be made with the
assistance of computer programs. Faucet maker Moen decided to carry a variety of products with
different colors and styles. It concluded that it was not in the business of selling hardware but instead
should be selling fashion and jewelry for bathrooms and kitchens.


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One of the most important functions of any marketing effort is promotion and advertising. Product
success is a direct function of the types of advertising and sales promotion done. Dole Food
Company, for example, promoted its products by putting a $10 electronic incentive on 30 million
packages of its Fruit Bowl. The 810 in electronic currency could be spent at seven participating
on-line retailers, including Art.com, Cooking.com, Kbkids.com, and SunglassHut.com. The size of the
promotion budget and the allocation of this budget among various campaigns are important factors
in planning the campaigns that will be launched—everything from placing ads during the Super
Bowl to offering coupons in a grocery store. Television coverage, newspaper ads, promotional
brochures and literature, and training programs for salespeople are all components of these
campaigns. Because of the time and scheduling savings they offer, computer programs are used to set
up the original budget and to monitor expenditures and the overall effectiveness of various
promotional campaigns.

Product pricing is another important and complex marketing function. Retail price, wholesale price,
and price discounts must be set. A major factor in determining pricing policy is an analysis of the
demand curve, which attempts to determine the relationship between price and sales. Most firms try to
develop pricing policies that will maximize total sales revenues—usually a function of price elasticity. If the
product is very price sensitive, a reduction in price can generate a substantial increase in sales, which can
result in higher revenues. A product that is relatively insensitive to price can have its price substantially
increased without a large reduction in demand. Computer programs can help determine price elasticity
and various pricing policies, such as supply and demand curves for pricing analysis. Typically, a
marketing executive has the ability to make alterations in price on the computer system, which
analyzes price changes and their impact on total revenues. The rapid feedback now obtainable through
computer communications networks enables managers to determine the results of pricing decisions
much more quickly than in the past. This ability facilitates more aggressive pricing strategies, which can
be quickly adjusted to meet market needs. One critical pricing decision is when to mark down product
prices. Using sophisticated software, ShopKo has been able to reduce the number and amount of
price cuts, which has helped increase profitability.

     Sales analysis is also important to identify products, sales personnel, and customers that
contribute to profits and those that do not. Several reports can be generated to help marketing
managers make good sales decisions. The sales-by-product report lists all major products and their
sales for a period of time, such as a month. This report shows which products are doing well and
which ones need improvement or should be discarded altogether. The sales-by-salesperson report
lists total sales for each salesperson for each week or month. This report can also be subdivided by
product to show which products are being sold by each salesperson. The sales-by-customer report is a
tool to use to identify high- and low-volume customers.

HUMAN RESOURCE MANAGEMENT INFORMATION SYSTEMS

A human resource MIS, also called the personnel MIS, is concerned with activities related to
employees and potential employees of the organization. Because the personnel function relates to all
other functional areas in the business, human resource MIS plays a valuable role in ensuring
organizational success. Some of the activities performed by this important MIS include workforce analy-
sis and planning; hiring; training; job and task assignment; and many other personnel-related issues.
Personnel issues can include offering new hires attractive stock option and incentive programs. One


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company, for example, offered engineers a two-year lease on a sporty BMW roadster as a signing
bonus. An effective human resource MIS will allow a company to keep personnel costs at; a minimum
while serving the required business processes needed to achieve corporate goals.

One of the first aspects of any human resource MIS is determining personnel and human needs. The
overall purpose of this MIS subsystem is to put the right number and kinds of employees in the right
jobs when they are needed. Effective human resource planning requires defining the future number
of employees needed and anticipating the future supply of people for these jobs. For firms involved
with large projects, such as military contractors and large builders, human resource plans can be
generated directly from data on current and future-projects.

If the human resource plan reveals that additional personnel are required, the next logical step is
recruiting and selecting personnel. This subsystem performs one of the most important and critical
functions of any organization, especially in service organizations, where employees can define the
company's success. Firms seeking new employees often use computers to schedule recruiting efforts and
trips and to test potential employees' skills. Some software firms, for example, use computerized testing
to determine a person's programming skills and abilities. Management information systems can be
used to help rank and select potential employees. For every applicant, the results of interviews, tests, and
company visits can be analyzed by the system and printed. This report, called a job applicant review profile,
can assist corporate recruiting teams in final selection. Some software programs can even analyze this
data to help identify job applicants most likely to stay with the company and perform according to
corporate standards. Many firms now use the Internet to screen for job applicants. Applicants
use a template to load their resume onto the Internet site. HR managers can then access these
resumes and identify applicants they are interested in interviewing.

Some jobs, such as programming, equipment repair, and tax preparation, require very specific training.
Other jobs may require general training about the organizational culture, orientation, dress
standards, and expectations of the organization. Today, many organizations conduct their own
training, with the assistance of information systems and technology. Self-paced training can involve
computerized tutorials, video programs, and CD-ROM books and materials. Distance learning, where
training and classes are conducted over the Internet, is also becoming a viable alternative to more
traditional training and learning approaches. This text and supporting material, for example, can be
used in a distance-learning environment. When training is complete, employees may be required to
take computer-scored tests to reveal their mastery of skills and new material. The results of these tests
are usually given to the employee's supervisor in the form of training or skills inventory reports. In
some cases, skills inventory reports are used for job placement. For instance, if a particular position
in the company needs to be filled, managers might wish to hire internally before they recruit. The skills
inventory report would help them evaluate current employees to determine their potential for the
position. They can also be part of employee evaluations and determine raises or bonuses. These types
of tests, however, must be valid and reliable to avoid mistakes in job placement and bonuses.
Technology can also be used to reduce training needs and costs. Buy.com, for example, used Finali and
Net Sage to help employees answer customer questions. The Finali and Net Sage products helped
Buy.com reduce training and customer service costs by 40 percent.

Scheduling people and jobs can be relatively straightforward or extremely complex. For some small
service firms, scheduling and job placements are based on which customers walk through the door.
Determining the best schedule for flights and airline pilots, placing military recruits into jobs, and


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determining what truck drivers and equipment should be used to transport materials across the
country normally require sophisticated computer programs. In most cases, various schedules and job
placement reports are generated. Employee schedules are developed for each employee, showing
their job assignments over the next week or month. Job placements are often determined based on
skills inventory reports, which show which employee might be best suited to a particular job.

The last of the major human resource MIS subsystems involves determining wages, salaries, and
benefits, including medical payments, savings plans, and retirement accounts. Wage data, such as
industry averages for positions, can be taken from the corporate database and manipulated by the
human resource MIS to provide wage information and reports to higher levels of management. These
reports, called salary surveys, can be used to compare salaries with budget plans, the cost of salaries
versus sales, and the wages required for any one department or office. The reports also help show
backup of key positions in the company. Wage and salary administration also entails designing
retirement programs for employees. Some firms use computerized retirement programs to help
employees gain the most from their retirement accounts and options.

OTHER MANAGEMENT INFORMATION SYSTEMS

In addition to finance, manufacturing, marketing, and human resource MISs, some firms have
other functional management information systems.

ACCOUNTING Management information systems (MIS)

In some cases, accounting works closely with financial management. An accounting MIS
performs a number of important activities, providing aggregate information on accounts payable,
accounts receivable, payroll, and many other applications. The organization's TPS captures
accounting data, which is also used by most other functional information systems. Some smaller
firms hire outside accounting firms to assist them with their accounting functions. These outside
firms produce reports for the firm using raw accounting data. In addition, many excellent integrated
accounting programs, such as QuickBooks, are available for personal computers in small firms.
Depending on die needs of the small organization and its personnel's computer experience, using
these computerized accounting systems can be a very cost-effective approach to managing
information.

Geographic Information Systems

     Increasingly, managers want to see data presented in graphical form. A geographic information
system (GIS) is a computer system capable of assembling, storing, manipulating, and displaying
geographically referenced information, that is, data identified according to their locations. A GIS
enables users to pair maps or map outlines with tabular data to describe aspects of a particular
geographic region. For example, sales managers may want to plot total sales for each county in the
states they serve. Using a GIS, they can specify that each county be shaded to indicate the relative
amount of sales—no shading or light shading represents no or little sales and deeper shading represents
more sales. As seen in the "IS Principles in Action" box, a GIS can be invaluable in helping to eradicate a
forest pest, prevent forest damage, and save millions of dollars. Because the GIS works with any data
represented in tabular form, graphical capability is finding its way into spreadsheets. For example,
Excel and Lotus include a mapping tool that lets you plot spreadsheet data as a demographic map.


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Such applications show up frequently in scientific investigations, resource management, and
real-estate development planning. Retail, government, and utility organizations are frequent users of
GISs. Retail chains, for example, need spatial analysis to determine where potential customers are
located and where their competition is.

AN OVERVIEW OF DECISION SUPPORT SYSTEMS

Decision support systems offer the potential to generate higher profits, lower costs, and better
products and services. For example, healthcare organizations use DSSs to track and reduce costs. As
with a TPS and an MIS, a DSS should be designed, developed, and used to help an organization
achieve its goals and objectives. Decision support systems, although skewed somewhat toward the
top levels of management, are used at all levels. To some extent, today's managers at all levels are
faced with less structured, non routine problems, but the quantity and magnitude of these decisions
increase as a manager rises higher in an organization. Many organizations contain a tangled web of
complex rules, procedures, and decisions. DSSs are used to bring more structure to these problems
to aid the decision-making process. In addition, because of the inherent flexibility of decision support
systems, managers at all levels are able to use DSSs to assist in some relatively routine, programmable
decisions in lieu of more formalized management information systems.

Decision support systems have a number of characteristics that allow them to be effective
management support tools. Of course, not all DSSs work the same— some are small in scope and
offer only some of these characteristics. In general, a decision support system can perform the
following functions: For instance, advanced database management systems and data warehouses have
allowed decision makers to search for information with a DSS even when some data resides in
different databases on different computer systems or networks. Managers can get the information
they want, presented in a format that suits their needs. Furthermore, output can be displayed on
computer screens or printed, depending on the needs and desires of the problem solvers. Today's
decision support systems can produce text, tables, line drawings, pie charts, trend lines, and more.
By using their preferred orientation, managers can use a DSS to get a better under standing of a
situation and to convey this understanding to others. A manager can get more levels of detail when
needed by drilling down through data. For example, a manager can get more detailed information
for a project—viewing the overall project cost or drilling down and seeing the cost for each phase,
activity, and task. Marketing research surveys, for example, can be analyzed in a variety of ways using
programs that are part of a DSS. Many of the analytical programs associated with a DSS are actually
stand-alone programs, and the DSS brings them together.

By supporting all types of decision-making approaches, a DSS gives the decision maker a great deal
of flexibility in computer support for decision making. For example, what-if analysis, the process
of making hypothetical changes to problem data and observing the impact on the results, can be
used to control inventory. Given the demand for products, such as automobiles, the computer
can determine the necessary parts and components, including engines, transmissions, windows,
and so on. With "what-if" analysis, a manager can make changes to problem data (the number of
automobiles needed for next month) and immediately see the impact on the parts requirements.

Goal-seeking analysis is the process of determining the problem data required for a given result.
For example, a financial manager may be considering an investment with a certain monthly net
income, and the manager might have a goal to earn a return of 9 percent on the investment. Goal


                                                                                                           22
seeking allows the manager to determine what monthly net income (problem data) is needed to
have a return of 9 percent (problem result). Some spreadsheets can be used to perform
goal-seeking analysis.

Simulation is the ability of the DSS to duplicate the features of a real system. In most cases, probability
or uncertainties are involved. For example, the mean time between failure and the mean time to
repair key components of a manufacturing line can be calculated to determine the impact on the
number of products that can be produced each shift. Engineers can use this data to determine which
components need to be reengineered to increase the mean time between failures and which
components need to have an ample supply of spare parts to reduce the mean time to repair. Drug
firms are using simulated trials to reduce the need for human participants and reduce the time and
costs of bringing a new drug to market. Drug firms are hoping that this use of simulation will help
them identify successful drugs earlier in development.

Developers of decision support systems strive to make them more flexible than management
information systems and to give them the potential to assist decision makers in a variety of situations.
DSSs can assist with all or most problem-solving phases, decision frequencies, and different degrees
of problem structure. DSS approaches can also help at all levels of the decision-making process. In
this section we investigate these DSS capabilities.

The objective of most decision support systems is to assist decision makers with the phases of
problem solving. As previously discussed, these phases include intelligence, design, choice,
implementation, and monitoring. A specific DSS might support only one or a few phases.

Decisions can range on a continuum from one-of-a-kind to repetitive decisions. One-of-a-kind
decisions are typically handled by an ad hoc DSS. An ad hoc DSS is concerned with situations or
decisions that come up only a few times during the life of the organization; in small businesses, they
may happen only once. For example, a company might be faced with a decision on whether to build
a new manufacturing facility in another area of the country. Repetitive decisions are addressed by
an institutional DSS. An institutional DSS handles situations or decisions that occur more than once,
usually several times a year or more. An institutional DSS is used repeatedly and refined over the
years. Examples of institutional DSSs include systems that support portfolio and investment deci-
sions and production scheduling. These decisions may require decision support numerous times
during the year. Between these two extremes are decisions managers make several times, but not
regularly or routinely.

Highly structured problems are straightforward, requiring known facts and relationships.
Semistructured or unstructured problems, on the other hand, are more complex. The relationships
among the data are not always clear, the data may be in a variety of formats, and the data is often
difficult to manipulate or obtain. In addition, the decision maker may not know the information
requirements of the decision in advance.

At the core of a DSS are a database and a model base. In addition, a typical DSS contains a dialogue
manager, which allows decision makers to easily access and manipulate the DSS and to use
common business terms and phrases. Finally, access to the Internet, networks, and other
computer-based systems permits the DSS to tie into other powerful systems, including the TPS or



                                                                                                              23
function-specific subsystems. Internet software agents, for example, can be used in creating
powerful decision support systems.

The database management system allows managers and decision makers to perform qualitative
analysis on the company's vast stores of data in databases, data warehouses, and data marts. A
data-driven DSS primarily performs qualitative analysis based on the company's databases.
Data-driven DSSs tap into vast stores of information contained in the corporate database, retrieving
information on inventory, sales, personnel, production, finance, accounting, and other areas.

    A database management system can also connect to external databases to give managers and
decision makers even more information and decision support. External databases can include the
Internet, libraries, government databases, and more. The combination of internal and external
database access can give key decision makers a better understanding of the company and its
environment.

Group Decision Support Systems (GDSS)

The DSS approach has resulted in better decision making for all levels of individual users. However,
many DSS approaches and techniques are not suitable for a group decision-making environment.
Although not all workers and managers are involved in committee meetings and group
decision-making sessions, some tactical and strategic-level managers can spend more than half their
decision-making time in a group setting. Such managers need assistance with group decision making.
A group decision support system (GDSS), also called group support system and computerized
collaborative work system, consists of most of the elements in a DSS, plus GDSS software needed to
provide effective support in group decision-making settings.

Group decision support systems are used in most industries. Architects are increasingly using GDSS
to help them collaborate with other architects and builders to help them develop the best plans
and to compete for contracts. It is often said that two heads are better than one. When it comes
to decision making, a GDSS's unique characteristics have the potential to result in better decisions.
Developers of these systems try to build on the advantages of individual support systems while
realizing that new and additional approaches are needed in a group decision-making environment.
For example, some GDSSs can allow the exchange of information and expertise among people without
meetings or direct face-to-face interaction.

Many GDSSs allow anonymous input, where the person giving the input is not known to other group
members. For example, some organizations use a GDSS to help rank the performance of managers.
Anonymous input allows the group decision makers to concentrate on the merits of the input
without considering who gave it. In other words, input given by a top-level manager is given the same
consideration as input from employees or other members of the group. Some studies have shown
that groups using anonymous input can make better decisions and have superior results compared
with groups that do not use anonymous input. Anonymous input, however, can result in flaming,
where an unknown team member posts insults or even obscenities on the GDSS system. One key
characteristic of any GDSS is the ability to suppress or eliminate group behavior that is
counterproductive or harmful to effective decision making. In some group settings, dominant
individuals can take over the discussion, which can prevent other members of the group from
presenting creative alternatives. In other cases, one or two group members can sidetrack or subvert


                                                                                                        24
the group into areas that are nonproductive and do not help solve the problem at hand. Other times,
members of a group may assume they have made the right decision without examining alternatives—a
phenomenon called groupthink. With traditional group meetings, people must take turns
addressing various issues. One person normally talks at a time. With a GDSS, it is possible for every
group member to address issues or make comments at the same time by entering them into a PC or
workstation. These comments and issues are displayed on every group member's PC or workstation.
Parallel communication can speed meeting times and result in better decisions. Most GDSSs can keep
detailed records of a meeting automatically. Each comment that is entered into a group member's PC
or workstation can be anonymously recorded. In some cases, literally hundreds of com ments can
be stored for future review and analysis. In addition, most GDSS packages have automatic voting and
ranking features. After group members vote, the GDSS records each vote and makes the
appropriate rankings.

GDSS software, often called groupware or workgroup software helps with joint work group scheduling,
communication, and management. One popular package, Lotus Notes, can capture, store,
manipulate, and distribute memos and communications that are developed during group projects.
This software allows users to set up electronic bulletin boards, schedule group meetings, and use
e-mail in a group setting. NetDocuments Enterprise was a PC Magazine Editor's Choice for
providing Web collaboration. The groupware is intended for legal, accounting, and real-estate
businesses. A Breakout Session feature allows two people to take a copy of a document to a shared
folder or director for joint revision and work. The software also permits digital signatures and the
ability to download and work on shared documents on handheld computers. Other GDSS software
packages include Collabra Share, OpenMind, and Team Ware. All of these tools can aid in group
decision making.
    In addition to stand-alone products, GDSS software is increasingly being incorporated into
existing software packages. Today, some transaction processing and enterprise resource planning
packages include collaboration software. SAP, a popular ERP package discussed has developed
mySAP Technology to facilitate collaboration and to allow SAP users to integrate applications from
other vendors into the SAP system of programs.

EXECUTIVE SUPPORT SYSTEMS

Because top-level executives often require specialized support when making strategic decisions,
many firms have developed systems to assist executive decision making. This type of system,
called an executive support system (ESS), is a specialized DSS that includes all hardware, software,
data, procedures, and people used to assist senior-level executives within the organization. In some
cases, an ESS, also called an executive information system (EIS), supports the actions of members
of the board of directors, who are responsible to stockholders. An ESS can also be used by individuals
farther down in the organizational structure. Once targeted at the top-level executive decision
makers, ESSs are now marketed to—and used by—employees at other levels in the organization. In the
traditional view, ESSs give top executives a means of tracking critical success factors. Today, all levels of
the organization share information from the same databases. However, for our discussion, we will
assume ESSs remain in the upper management levels, where they indicate important corporate issues,
indicate new directions the company may take, and help executives monitor the company's progress.

An ESS is a special type of DSS, and, like a DSS, an ESS is designed to support higher-level decision
making in the organization. The two systems are, however, different in important ways. DSSs provide


                                                                                                                25
a variety of modeling and analysis tools to enable users to thoroughly analyze problems—that is, they
    allow users to answer questions. Following are general characteristics of ESSs:

  Tailored to individual executives. ESSs are typically tailored to individual executives; DSSs are not tailored
   to particular users. An ESS is an interactive, hands-on tool that allows an executive to focus, filter,
   and organize data and information.
 Easy to use. A top-level executive's most critical resource can be his or her time. Thus, an ESS must
   be easy to learn and use and not overly complex.
 Have drill down abilities. An ESS allows executives to drill down into the company to determine
   how certain data was produced. Drill down allows an executive to get more detailed information if
   needed.
 Support the need for external data. The data needed to make effective top-level decisions is often
   external—information from competitors, the federal government, trade associations and journals,
   consultants, and so on. An effective ESS is able to extract data useful to the decision maker from a wide
   variety of sources including the Internet and other electronic publishing sources such as
   LexisNexis.
 Can help with situations that have a high degree of uncertainty. There is a high degree of
   uncertainty with most executive decisions. Handling these unknown situations using modeling
   and other ESS procedures helps top-level managers measure the amount of risk in a decision.
 • Have a future orientation. Executive decisions are future oriented, meaning that decisions
   will have a broad impact for years or decades. The information sources to support
   future-oriented decision making are usually informal—from golf partners to members of
   social clubs or civic organizations.
 • Are linked with value-added business processes. Like other information systems, executive
   support systems are linked with executive decision making about value-added business
   processes. For instance, executive support systems can be used by car-rental firms to analyze
   trends.

    The responsibility given to top-level executives and decision makers brings unique
    problems and pressures to their jobs. The following is a discussion of some of the
    characteristics of executive decision making that are supported through the ESS approach.
    As you will note, most of these are related to an organization's overall profitability and
    direction. An effective ESS should have the capability to support executive decisions with many
    of these capabilities, such as strategic planning and organizing, crisis management, and more.

    One of the key roles of senior executives is to provide a broad vision for the entire
    organization. This vision includes the organization's major product lines and services, the
    types of businesses it supports today and in the future, and its overriding goals.

    ESSs also support strategic planning. Strategic planning involves determining long-term
    objectives by analyzing the strengths and weaknesses of the organization, predicting future
    trends, and projecting the development of new product lines. It also involves planning the
    acquisition of new equipment, analyzing merger possibilities, and making difficult decisions
    concerning downsizing and the sale of assets if required by unfavorable economic conditions.

    Top-level executives are concerned with organization structure. For example, decisions
    concerning the creation of new departments or downsizing the labor force are made by

                                                                                                                    26
top-level managers. Overall direction for staffing decisions and effective communication with
labor unions are also major decision areas for top-level executives. ESSs can be employed to
help analyze die impact of staffing decisions, potential pay raises, changes in employee
benefits, and new work rules.

Summary:
Even though the technology exists to run TPS applications using on-line processing, it is not done for all
applications. For many applications, batch processing is more appropriate and cost-effective. Payroll
transactions and billing are typically done via batch processing. An MIS provides managers with
information, typically in reports, that support effective decision making and provides feedback on daily
operations. Note that business transactions can enter the organization through traditional methods or
via the Internet or an extranet connecting customers and suppliers to the firm's transaction processing
systems. The MIS uses the data obtained from these sources and processes it into information more
usable to managers, primarily in the form of predetermined reports. Decision support systems have a
number of characteristics that allow them to be effective management support tools. By supporting
all types of decision-making approaches, a DSS gives the decision maker a great deal of flexibility in
computer support for decision making. At the core of a DSS are a database and a model base. In
addition, a typical DSS contains a dialogue manager, which allows decision makers to easily access
and manipulate the DSS and to use common business terms and phrases.

A group decision support system (GDSS), also called group support system and computerized
collaborative work system, consists of most of the elements in a DSS, plus GDSS software needed to
provide effective support in group decision-making settings. Group decision support systems are
used in most industries. GDSS software, often called groupware or workgroup software, helps with
joint work group scheduling, communication, and management. One popular package, Lotus Notes,
can capture, store, manipulate, and distribute memos and communications that are developed
during group projects.

An ESS is a special type of DSS, and, like a DSS, an ESS is designed to support higher-level decision
making in the organization. ESSs also support strategic planning. Strategic planning involves
determining long-term objectives by analyzing the strengths and weaknesses of the organiza-
tion, predicting future trends, and projecting the development of new product lines. It also
involves planning the acquisition of new equipment, analyzing merger possibilities, and
making difficult decisions concerning downsizing and the sale of assets if required by
unfavorable economic conditions


Key words:
Information Systems: components of Hardware, Software, Database, Networks and people in an
organization.

Transaction Processing System: The operation level system.

                                                                                                             27
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Information system for managers

  • 1. Information Systems for Managers Table of Contents Chapter 1: Foundation of Information Systems (IS). 1.1 Introduction 1.2 THE FIRM AND ITS ENVIRONMENT 1.3 Information Systems in Business. 1.4 Summary 1.5 Key words 1.6 Questions 1.7 Case 1.8 References Chapter 2: IS in Business and components of IS 2.1 Introduction: IS in Business 2.2 Types of Information Systems (IS). 2.3 Transaction Processing System (TPS) 2.4 Management Information Systems (MIS) 2.5 Decision Support System (DSS) 2.6 Group Decision Support System (GDSS) 2.7 Executive Support Systems (ESS). 2.8 Summary 2.9 Key words 2.10 Case 2.12 References Chapter 3: Competing with Information Technology 3.1 Introduction 3.2 Expanding the value chain 3.3 Competing with Information Technology 3.4 Summary 3.5 Key words 3.6 Case 3.7 References Chapter 4: Telecommunications and Networks 4.1 Introduction 4.2 Telecommunications Technologies 4.3 Some Important Networking Terminologies 4.4 Summary 4.5 Key words 4.6 Summary questions
  • 2. 4.7 Critical thinking case questions 4.8 References Chapter 5: Telecommunications Network Alternatives 5.1 Introduction 5.2 Basics of Network 5.3 TELECOMMUNICATIONS - HARDWARE 5.4 Summary 5.5 Key words 5.6 Summary questions 5.7 References Chapter 6: Using IT for strategic Advantage 6.1 Introduction 6.2 Importance of IT. 6.3 Technology for strategic advantage. 6.4 Summary 6.5 Key words 6.6 Summary questions 6.7 Case 6.8 References Chapter 7: Enterprise Business Systems and ERP: The Business Backbone 7.1 Introduction 7.2 ERP vendors 7.3 Advantages and disadvantages of ERP 7.4 An Example of ERP System 7.5 Summary 7.6 Key Words 7.7 Summary Questions 7.8 Case 7.9 References Chapter 8: Supply chain Management (SCM): The Business Network 8.1 Introduction 8.2 Supply Chain Management 8.3 Understanding Supply chain management. 8.4 Summary 8.5 Key Words 8.6 Summary Questions 8.7 Case. 8.8 References Chapter 9 ELECTRONIC COMMERCE fundamentals, systems, applications and issues 9.1 Introduction 9.2 E-Commerce Challenges 9.3 E-Commerce Supply Chain 9.4 Types of E-Commerce 9.5 E-commerce Applications. 9.6 Electronic Payment Systems 9.7 Summary
  • 3. 9.8 Key Words 9.9 Summary Questions 9.10 Case 9.11 References Chapter 10.Implementing Business Systems 10.1 Introduction 10.2 Types of Functional Business Systems 10.3 Summary 10.4 Key Words 10.5 Summary Questions 10.6 Case 10.7 References Chapter 11.Developing Business IT Solutions and SDLC 11.1 Introduction 11.2 Types of functional business systems 11.3 Initiating systems development 11.4 Information systems planning 11.5 Establishing objectives for systems development 11.6 Systems development and e-commerce 11.7 Systems development life cycles 11.8 The capability maturity model (CMM) 11.9 Systems investigation 11.10. The IS plan 11.11 Summary 11.12 Key words 11.13 Summary questions 11.14 Case 11.15 References Chapter 12 Security and Ethical Challenges 12.1 Introduction 12.2 Some Security Terms 12.3 Common Threats 12.4 Summary 12.5 Key words 12.6 Summary Questions 12.7 Case 12.8 References Chapter 13: Security Management of IT 13.1 Introduction 13.2 Security Concerns 13.3 Major Threats 13.4 Security Management 13.5 Summary 13.6 Key Words
  • 4. 13.7 Summary Questions 13.8 Case 13.9 References Chapter 14: Enterprise and Global Management of IT 14.1 Introduction 14.2 Global IT management 14.3 Global Enterprise IT Management 14.4 Summary 14.5 Key Words 14.6 Summary Questions 14.7 Case 14.8 References
  • 5. Part 1 Foundation Concepts Chapter 1: Foundations of Information Systems (IS) in Business Chapter 2: IS in Business and Components of IS Chapter 3: Competing with Information Technology 1
  • 6. Chapter 1 Foundation of Information Systems (IS). Objectives: At the end of the chapter you should be able to: • Identify what is Information Systems (IS). • Identify system, its resources and its environment. • Identify with examples of Information Systems (IS). Introduction. The general systems model of the firm provides a good template for analyzing an organization. It highlights the elements that should be present and how they should interact. In the same manner, the model of the eight environmental elements of a firm provides a good way to come to grips with the complexity of how the firm interacts with its environment. An integration of the general systems model and the eight-element environmental model provides the foundation for a concept receiving much current attention-supply chain management. During recent years, the topic of competitive advantage has been the focus of much discussion. Usually, competitive advantage is achieved by managing physical resources, but virtual resources can also play a big role. Michael E. Porter is credited with shedding the most light on the competitive-advantage concept and contributing the ideas of value chains and value systems, which are compatible with taking a systems view of the firm and its environment. The firm's executives can use information to gain strategic, tactical, and operational advantages. A broad view of competitive advantage recognizes the organizations that compete with the firm as well as professionals and staff in other countries that compete with the firm's employees for jobs. Multinational corporations often outsource tasks to other organizations in order to achieve an economic advantage. Firms that do business globally have special needs for information and coordination. A firm's information resources include hardware, software, information specialists, users, facilities, databases, and information. Information has four desirable dimensions: relevancy, accuracy, timeliness, and completeness. Substantial advantages accrue to corporations that achieve coordination through the use of information resources. Multinational corporations face significant challenges in the form of politically imposed constraints, cultural and communications barriers, technological problems, and lack of support from subsidiary managers. 2
  • 7. The task of knowledge management is changing continually. Firms have been using computers since the 1950s, and data formats and storage techniques have changed considerably since then. However, the data in older legacy systems provide valuable insights into business trends and operations. Most legacy systems only stored text and numbers, but today images are also an important part of information systems. Knowledge management recognizes that information represents the firm's knowledge resource. Knowledge management is required to organize, access, and leverage the firm's data and information for decision making. The firm s executives perform strategic planning for the entire organization, the business area, and the information resources. The chief information officer (also called the chief technology officer) plays a key role in all types of strategic planning. A strategic plan for information resources identifies the objectives that the firm's information systems should meet in the coming years and the information resources that will be necessary to meet those objectives. THE FIRM AND ITS ENVIRONMENT A firm is a physical system that is managed through the use of a virtual system. The physical system of the firm is an open system in that it interfaces with its environment. A firm takes resources from its environment, transforms the resources into products and services, and returns the transformed resources to the environment. THE PHYSICAL RESOURCE FLOW The firm's physical resources include personnel, material, machines, and money. Personnel are hired by the firm, transformed to higher skill levels through training and experience, and eventually leave the firm. Material enters the firm in the form of raw inputs and is transformed into finished goods, which are then sold to the firm's customers. Machines are purchased, used, and eventually scrapped or traded in on newer machines. Money enters the firm in the form of sales receipts, shareholder investments, and loans and is transformed into payments to suppliers, taxes to the government, and returns to stockholders. While in the firm, the physical resources are used to produce the products and services the firm provides to its customers. THE FIRM'S CONTROL MECHANISM The elements that enable the firm to control its own operations include (1) the performance standards the firm must meet if it is to accomplish its overall objectives (2) the firm's management and (3) an information processor that transforms data into information. THE FEEDBACK Loop The feedback loop is composed of the virtual resources. Data are gathered from the firm and from the environment and entered into the information processor, which transforms it into information. The information is made available to managers, who make decisions to affect necessary changes in the physical system. Management is guided in its decision making by the firm's performance standards. These performance standards can also be used by the information processor to determine when the firm is not performing as planned. 3
  • 8. Information Systems in Business The general systems model of the firm makes it easy to see the importance of the environment to a firm's success. A firm exists for the purpose of providing products and services that meet environmental needs. Equally important, a firm cannot function without the resources that the environment provides. The environment varies from firm to firm. A bank has a different environment than does a sporting goods store or a church. However, we can identify eight major elements that exist in the environments of all firms.' These environmental elements are organizations and individuals that exist outside the firm and that have a direct or indirect influence on it. These eight elements exist in a larger system called a society. Suppliers, also called vendors, supply the materials, machines, services, people, and information that the firm uses to produce its products and services. These products and services are marketed to the firm's customers. Labor unions are organizations of both skilled and unskilled workers for certain trades and industries. The financial community consists of institutions such as banks and other lending institutions that influence the financial resources that are available to the firm. Stockholders and owners are the persons who invest money in the firm; they are the ultimate owners of the firm. Competitors include all of the organizations that compete with the firm in its marketplace. The government, on the national, state or province, and local levels, provides constraints in the form of laws and regulations and also provides assistance in the form of purchases, information, and funds. The global community is the geographic area where the firm performs its operations. The firm demonstrates its responsibility to the global community by respecting the natural environment, providing products and services that contribute to quality of life, and conducting its operations in an ethical manner. The firm is connected to its environmental elements by environmental resource flows. Some of the resources flow more frequently than others does. Common flows include information flow from customers, material flow to customers, money flow to stockholders, and raw materials flow from suppliers. Less frequent flows include money flow from the government (such as for research), material flow to suppliers (returned merchandise), and personnel flow to competitors (employees "pirated" by other firms). Not all resources flow between the firm and all its environmental elements. For example, machines normally do not flow from the firm to stockholders, and money should not flow to competitors. The only resource that connects the firm with all the elements is information, and the firm strives to make the information connection with competitors a one- way flow. Let us see how we can manage supply chain systems, electronic system and enterprise systems at basic level. The pathway that facilitates the flow of physical resources from suppliers to then to customers is called the supply chain. The flow of resources through the supply chain must be managed to ensure that it occurs in a timely and efficient manner; this process is called supply chain management. Supply chain management consists of the following activities: 4
  • 9. Forecasting customer demand • Scheduling production • Establishing transportation networks • Ordering replenishment stock from suppliers • Receiving stock from suppliers • Managing inventory-raw materials, work-in-process, and finished goods • Executing production • Transporting resources to customers • Tracking the flow of resources from suppliers, through the firm, and to customers As resources flow through the supply chain they can be tracked electronically, step-by-step. As resources move through the supply chain, actions are recorded in computer terminals located at suppliers' sites, in the firm's receiving area, in the firm's inventory and production areas, in the firms' shipping areas, in the vehicles used by the transporters, and at customers’ sites. Data are entered into the terminals either by keyed input, bar-code scanning, or radio frequency ID. As the data are captured, the firm's information system is updated to reflect the current location of the resource being tracked. The ability to track the flow of the resources as it occurs contributes to supply chain management. Supply Chain Management and Enterprise Resource Planning Systems Supply chain management is only one aspect of enterprise resource planning ( ERP) systems, yet it can play a crucial role in operations. The use of the same ERP system vendor (SAP, Oracle, or some other) by members in the supply chain helps to facilitate the flow of supply chain information. However, the cost of ERP systems can be high, and not every member in a supply chain may wish to purchase ERP software. When one member of a supply chain has substantial power over the other members, such as a large retailer like Wal-Mart has over its suppliers, the more powerful member can apply pressure on the other members to use the same ERP software. In that case, the transfer of data from one member to another is facilitated and all members benefit, but the most powerful member of the supply chain receives the most benefit. As firms go about meeting the product and service needs of their customers. Firms strive to obtain an advantage over their competitors. They can achieve this advantage by providing products and services at a lower price, providing higher quality products and services, and meeting the special needs of certain market segments. What is not always obvious is the fact that a firm can also achieve competitive advantage through the use of its virtual resources. In the information systems field, competitive advantage refers to the use of 5
  • 10. information to gain leverage in the marketplace. Note that the firm's managers use virtual as well as physical resources in meeting the strategic objectives of the firm. Summary: A firm's information resources include hardware, software, information specialists, users, facilities, databases, and information. Information has four desirable dimensions: relevancy, accuracy, timeliness, and completeness. The firm s executives perform strategic planning for the entire organization, the business area, and the information resources. The chief information officer (also called the chief technology officer) plays a key role in all types of strategic planning. A strategic plan for information resources identifies the objectives that the firm's information systems should meet in the coming years and the information resources that will be necessary to meet those objectives. The general systems model of the firm makes it easy to see the importance of the environment to a firm's success. A firm exists for the purpose of providing products and services that meet environmental needs. Equally important, a firm cannot function without the resources that the environment provides. As resources flow through the supply chain they can be tracked electronically, step-by-step. As resources move through the supply chain, actions are recorded in computer terminals located at suppliers' sites, in the firm's receiving area, in the firm's inventory and production areas, in the firms' shipping areas, in the vehicles used by the transporters, and at customers’ sites. Supply chain management is only one aspect of enterprise resource planning ( ERP) systems, yet it can play a crucial role in operations. The use of the same ERP system vendor (SAP, Oracle, or some other) by members in the supply chain helps to facilitate the flow of supply chain information. However, the cost of ERP systems can be high, and not every member in a supply chain may wish to purchase ERP software. Keywords: Information Systems: collections of all components of hardware, software, database, networks and people. System: Collections of interrelated components Supply chain: The pathway that facilitates the flow of physical resources from suppliers to then to customer’s electronic systems. Enterprise Resource Planning (ERP): Firms internal data Management, integrating all internal business processes. Summary Questions. 1. What do you understand by Information Systems? 2. Explain the Environment in the information systems. 3. Explain the information systems in Business. 4. List some information systems that you are aware of? 6
  • 11. Case- 1: STUDY Roberts Company is a worldwide leader in financial management and employing 50, people in 36 countries and territories. It is into brokerage, investment banking, financing, wealth management, advisory, asset management, insurance, lending, and other related products and services to private, institutional, and government clients with assets of $1.6 trillion. Over the last five years, that IT infrastructure has played a major role in the company’s gains. Like many financial institutions, Roberts Company has had to modernize its technology infrastructure in order to remain competitive. In modernizing its technology, Roberts Company had to make choices regarding its legacy computers and applications. Internet-based applications that gave customers access to their portfolios and tools to work with them were a key to remaining competitive. But these applications did not use mainframe-based software. Roberts Company had initially tried to avoid the costs by copying the data stored in its mainframe installation into Oracle, Sybase, or Microsoft SQL Server databases. In those formats, the data were compatible with server-based applications. However, that technique was not entirely satisfactory. Copying large quantities of data often introduces errors based on disk failures and space issues. The project team prohibited the new platform from requiring changes to program code on the mainframe or hindering its operation in any respect. The team did not want to alter the mainframe in any way because of its track record, its complexity, and the fact that there was likely no one on staff who knew the inner workings of its deep-rooted code. Case Questions. 1. Why did the firm need to update its IT infrastructure? 2. What is the relationship of information technology to Robert Company’s business strategy? References Avisc. David "Information Systems in the MBA Curriculum: An lnternational Perspective." Communications of the AlS 11, Article 6 (January 2003), Baskerville Richard L. and Michael D. Myers. "Information Systems as a Reference Discipline." MIS Quarterly 26, no. 1 (March 2002). Brvnjolflsou, Erik. "The IT Productivity Gap." Optimize Magazine 21 (July 2003). Carr, Nicholas. "IT Doesn't Matter." Harvard Business Review (May 2003). Dedrick, Jason, Vijay Gurbaxani, and Kenneth L. Kraemer."Information Technology and Economic Performance: A Critical Review of the Empirical Evidence," Center for Research on Information Technology and Organizations, University of California, Irvine (December 2001). Laudon, Kenneth C. Computers and Bureaucratic Reform. New York: John Wiley and Sons (1974). Quinn, Francis J. "e Business Evangelist; An Interview with Erik Brynjolfsson." Supply Chain Mal1agemcnt Review (May June 20(6). 7
  • 12. Ross, Jeanne Wand Peter Weill. "Six IT Decisions Your IT People Shouldn't Make." Harvard Busil1css Review (November 2002). Chapter 2: IS in Business and components of IS Objectives: At the end of the chapter you should be able to: • Identify the concepts of Information Systems (IS). • Identify the types of IS. • Identify with examples of Transaction Processing System (TPS), Management Information Systems (MIS), Decision Support System (DSS), and Executive Support Systems (ESS). • Identify the process and reports of Transaction Processing System (TPS), Management Information Systems (MIS), Decision Support System (DSS), and Executive Support Systems (ESS). Introduction At a micro level, technology makes it possible to create new forms of organizations. Managers design and redesign organizations all the time. The decision you make to open a branch office and give it responsibility for sales in a region is an organization design issue. If you undertake a new project by creating a task force that includes members from around the world and that will work virtually, you have designed a temporary organization. One of the most difficult questions to answer is, "What do managers do?" For the first three or four decades of information technology, IT did little to help managers in their day-to- day tasks, often because IT staff did not understand managers. Few management information systems existed, though many companies claimed to have them. The last decade witnessed the development of groupware, designed to support both the daily tasks of management and coordination, and to provide a repository of organizational intelligence. Management researchers have emphasized the decision-making nature of management since the 1950s. Certainly, managers are expected to make decisions in many different domains. Important decisions include funding R&D, product development. The decision to introduce a new product. Many managerial decisions revolve around issues of resource allocation. Almost every organization is confronted with limited resources and competing demands for them. A role that managers often face is as a disturbance handler. Disputes and problems in the organization find their way to a manager who is in a position to resolve them. These disturbances may come from inside the firm, or they may be prompted by problems suppliers or customers. Managers also deal with information in their jobs and function as the spokesperson for the firm. A good manager scans the environment for competitive actions, threats, and opportunities. Today, companies are also dependent on government regulations and actions. Many communications and much purposeful managerial work revolve around information processing. Individuals frequently communicate to obtain new 8
  • 13. information. When making a decision, the manager must process information to determine the appropriate course of action to take. Suppliers and customers want information. The securities industry seeks information about company plans and performance. The technology described next is designed to support people in the organization in the tasks they are expected to perform. This technology lets managers and other workers redesign their tasks. It provides a great deal of flexibility and a number of alternatives for the flow of work, communications, and coordination. Groupware is aimed at what a manager does: It supports members of the organization who have a common task and operate in a shared environment. Hence there is a need to categorise information systems. A System is a collection of inter related components. An Information System (IS) is an integrated collection of Hardware, Software, Databases, Networks /Communications and People required managing the same. Examples of IS include Enterprise systems, Supply Chain Systems etc. Types of Information Systems An organization operates in an ever-increasing competitive and global environment. The successful organization focuses on the efficient execution of its processes, customer service, and speed to market. Enterprise applications provide an organization with a consolidated view of its operations across different functions, levels, and business units. Enterprise applications allow an organization to efficiently exchange information among its functional areas, business units, suppliers, and customers. Every business has manual and automated transaction processing systems (TPSs), which process the detailed data essential to update records about the fundamental business operations of the organization. These include order entry, inventory control, payroll, accounts payable, accounts receivable, and general ledger etc. The input to these systems includes basic business communication such as customer orders, purchase orders, receipts, time cards, invoices, and customer payments. The effect of processing business transactions is that the firm’s records are rationalized to reflect the status of the action at the time of the last processed transaction. Automated processes consist databases, telecommunications, people, procedures, software, and hardware devices used to process transactions. The activities include data collection, data edit, data correction, data manipulation, data storage and document production. Today’s business systems are built to electronically coordinate all the business functions. The sales function begins the process by carrying out a sales order, electronically inputting the data into the system. The sales system updates daily sales totals and decreases inventory. The accounting system electronically receives the order and runs a credit check. If the credit is not approved, then the business system sends an exception notification to an accounting specialist and the sales person. If credit is approved, then order is transformed to the manufacturing and production system and product assembly begins. When the product is finished, electronic shipping documents are prepared and logistics is notified. When the product is shipped, electronic notifications are sent to Sales, Manufacturing and Production, Accounting, and the customer. The system electronically bills the customer. From the above information, it is prudent that a business system need to function for top, middle and lower level of management. That is strategic level, managerial level and operational/transactional level. 9
  • 14. Transaction Processing Systems - TPS For most organizations, TPSs support the routine, day-to-day activities that occur in the normal course of business that help a company add value to its products and services. Depending on the customer, value may mean lower price, better service, higher quality, or uniqueness of product. By adding a significant amount of value to their products and services, firms ensure further organizational success. Because the TPSs often perform activities related to customer contacts – like order processing and invoicing – these information systems play a critical role in providing value to the customer. For example, by capturing and tracking the movement of each package, shippers like Federal Express and United Parcel Service (UPS) are able to provide timely and accurate data on the exact location of a package. Shippers and receivers can access an on-line database and, by providing the air bill number of a package, find the package’s current location. If the package has been delivered, they can see who signed for it (especially useful in large firms where packages can become lost in internal distribution systems and mailrooms). Such a system provides the basis for added value through improved customer service. When computerized transaction processing systems first evolved, only one method of processing was available. All transaction were collected in groups, called batches, and processed together. With batch processing systems, business transactions are accumulated over a period of time and prepared for processing as a single unit or batch. The time period during which transactions are accumulated is whatever length of time is needed to meet the needs of the users of that system. For example, it may be important to process invoices and customer payments for the accounts receivable system daily. On the other hand, the payroll system may receive time cards and process them biweekly to create checks and update employee earnings records as well as to distribute labour costs. Today’s computer technology allows another processing method, called on-line, real-time, or on-line transaction processing (OLTP). As soon as the input is available, a computer program performs the necessary processing and updates the records affected by that reflect the current status. When you make an airline reservation, for instance, the transaction is processed and all databases, such as seat occupancy and accounts receivable, are updated immediately. This type of processing is absolutely essential for businesses that require data quickly and update it often, such as airlines, ticket agencies, and stock investment firms. Many firms have found that OLTP helps them provide faster, more efficient service – one way to add value to their activities in the eyes of the customer. Increasingly, firms are using the Internet to perform many OLTP functions. A third type of transaction processing, called on-line entry with delayed processing is a compromise between batch and on-line processing. With this type of system, transactions are entered into the computer system when they occur, but they are not processed immediately. For example, when you call a toll-free number and order a product, your order is typically entered into the computer when you make the call. However, the order may not be processed until that evening after business hours. Even though the technology exists to run Transaction Processing Systems applications using on-line processing, it is not done for all applications. For many applications, batch processing is more appropriate and cost-effective. Payroll transactions and billing are typically done via batch processing. Specific goals of the organization define the method of transaction processing best suited for the various applications of the company. Because of the importance of transaction processing organizations expect their TPSs to accomplish a number of specific objectives, including the following: 10
  • 15. The primary objective of any TPS is to capture, process, and store transactions and to produce a variety of documents related to routine business activities. These business activities can be directly or indirectly related to selling products and services to customers. Processing orders, purchasing materials, controlling inventory, billing customers, and paying supplier and employees are all business activities that result from customer orders. These activities result in transactions that are processed by the TPS. One objective of any TPS is error-free data input and processing. Even before the introduction of computer technology, employees visually inspected all documents and reports introduced into or produced by the TPS. Because humans are fallible, the transactions were often inaccurate, resulting in wasted time and effort and requiring resources to correct them. An editing program, for example, should have the ability to determine that an entry that should read “40 hours ” is not entered as “ 400 hours” or ‘4000 hours” because of a data entry error. An important component of data integrity is to avoid fraudulent transactions. E-commerce firms face this problem when accepting credit or debit card information over the Internet. How can these firms make sure that the people making the purchases are who they say they are? One approach is to use a digital certificate. A digital certificate is a small computer file that serves as both an Id card and a signature. Some believe that digital certificates, which use complex mathematical codes, are almost fraud proof. Management Information Systems - MIS Management information systems (MIS) can often give firms a competitive advantage by providing the right information to the right people in the right format and at the correct time. In many cases, firms and individuals are willing to pay firms for this type of information. The primary purpose of an MIS is to help an organization achieve its goals by providing managers with insight into the regular operations of the organization so that they can control, organize, and plan more effectively and efficiently. One important role of the MIS is to provide the right information to the right person in the right fashion at the right time. In short, an MIS provides managers with information, typically in reports, that support effective decision making and provides feedback on daily operations. Note that business transactions can enter the organization through traditional methods or via the Internet or an extranet connecting customers and suppliers to the firm's transaction processing systems. The use of management information systems spans all levels of management. That is, they provide support to and are used by employees throughout the organization. Data that enters an MIS originates from both internal and external sources. The most significant internal source of data for an MIS is the organization's various TPSs and ERP systems and related databases. One of the major activities of a TPS is to capture and store the data resulting from ongoing business transactions. With every business transaction, various TPS applications make changes to and update the organization's databases. For example, the billing application helps keep the accounts receivable database up to date so that managers know who owes the company money. These updated databases are a primary internal source of data for the management information system. In firms that have implemented an ERP system, the collection of databases associated with this system is an important source of internal data for the MIS. Other internal data comes from specific functional areas throughout the firm. 11
  • 16. External sources of data can include customers, suppliers, competitors, and stockholders, whose data is not already captured by the TPS, as well as other sources, such as the Internet. In addition, many firms have implemented extranets to link them to these entities and allow for the exchange of data and information. The Management information systems (MIS) uses the data obtained from these sources and processes it into information more usable to managers, primarily in the form of predetermined reports. For example, rather than simply obtaining a chronological list of sales activity over the past week, a national sales manager might obtain her organization's weekly sales data in a format that allows her to see sales activity by region, by local sales representative, by product, and even in comparison with last year's sales. The output of most management information systems is a collection of reports that are distributed to managers. Data mining allows a company to filter through a vast amount of data stored in databases, data warehouses, and data marts to produce a variety of reports, including scheduled reports, key-indicator reports, demand reports, exception reports, and drill down reports. Scheduled reports are produced periodically, or on a schedule, such as daily, weekly, or monthly. For example, a production manager could use a weekly summary report that lists total payroll costs to monitor and control labor and job costs. A manufacturing report generated once a day to monitor the production or a new item is another example of a scheduled report. A key-indicator report summarizes the previous day's critical activities and is typically available at the beginning of each workday. These reports can summarize inventory levels, production activity, sales volume, and the like. Key-indicator reports are used by managers and executives to take quick, corrective action on significant aspects of the business. Demand reports are developed to give certain information upon request. In other words, these reports are produced on demand. For example, an executive may want to know the production status of a particular item—a demand report can be generated to give the requested information. Suppliers and customers can also use demand reports. FedEx, for example, provides demand reports on its Web site to allow its customers to track packages from their source to their final destination. On average, the bar code of a typical FedEx package is scanned a mind-boggling 23 times as it travels through the FedEx system. Penske Logistics uses wireless terminals to provide customers with critical delivery information on demand. Other examples of demand reports include reports requested by executives to show the hours worked by a particular employee, total sales to date for a product, and so on. Exception reports are reports that are automatically produced when a situation is unusual or requires management action. For example, a manager might set a parameter that generates a report of all inventory items with fewer than the equivalent of 5 days of sales on hand. This unusual situation requires prompt action to avoid running out of stock on the item. The exception report generated by this parameter would contain only items with fewer than 5 days of sales in inventory. As with key-indicator reports, exception reports are most often used to monitor aspects important to an organization's success. In general, when an exception report is produced, a manager or executive takes action. Drill down reports provides increasingly detailed data about a situation. Through the use of drill down reports, analysts are able to see data at a high level first (similar to a bag of cookies), then at a more detailed level (say, an Oreo), and then a very detailed level (an Oreo double-filling cookie's components). 12
  • 17. Management information system reports can help managers develop better plans, make better decisions, and obtain greater control over the operations of the firm. It is important to recognize that various types of reports can overlap. CHARACTERISTICS OF A MANAGEMENT INFORMATION SYSTEM In general, management information systems perform the following functions: • Provide reports with fixed and standard formats. For example, scheduled reports for inventory control may contain the same types of information placed in the same locations on the reports. Different managers may use the same report for different purposes. • Produce hard-copy and soft-copy reports. Some MIS reports are printed on paper and are considered hard-copy reports. Most output soft copy, using visual displays on computer screens. Soft-copy output is typically format in a report like fashion. In other words, a manager might be able to call a MIS report up directly on the computer screen, but the report would sti appear in the standard hard-copy format. Hard copy is still the most o used form of the MIS report. • Use internal data stored in the computer system. MIS reports use primarily internal sources of data that are contained in computerized databases. Some use external sources of data about competitors, the marketplace, and s The Internet and extranets are frequently used sources for external data. • Allow end users to develop their own custom reports. Although analysts and programmers may be involved in developing and implementing complex MIS reports that require data from many sources, end users are increasingly developing their own simple programs to query a database and produce basic reports. This capability, however, can result in several end users developing the same or similar reports, which can result in more total time expended and additional storage requirements, compared with having an analyst develop one report for all users. • Require user requests for reports developed by systems personnel. When information systems personnel develop and implement MIS reports, a formal request to the information systems department may be required. If a manager, for example, wants a production report to be used by several people in his or her department, a formal request for the report is often required. End user-developed reports require much less formality. Most organizations are structured along functional lines or areas. This functional structure is usually apparent from an organization chart, which typically shows vice presidents under the president. Some of the traditional functional areas are accounting, finance, marketing, personnel, research and development (R&D), legal services, operations/production management, and information systems. FINANCIAL MANAGEMENT INFORMATION SYSTEMS A financial management information system provides information not only for managers but also for a broader set of people who need to make better decisions on a daily basis. Finding opportunities and quickly identifying problems can mean the difference between a business's success and failure. Specifically, the financial MIS performs the following functions: • Integrates financial and operational information from multiple sources, including the Internet, into a single MIS. • Provides easy access to data for both financial and nonfinancial users, often through use of the corporate intranet to access corporate Web pages of financial data and information. 13
  • 18. • Makes financial data available on a timely basis to shorten analysis turnaround time. • Enables analysis of financial data along multiple dimensions—time, geography, product, plant, customer. In addition to providing information for internal control and management, financial MISs often are required to provide information to outside individuals and groups, including stockholders and federal agencies. Public firms are required to disclose their financial results to stockholders and the public. The federal government also requires financial statements and information systems. As a result of antiterrorism legislation signed into law by President Bush, financial service firms must now implement new information systems designed to make it easier for law enforcement agencies to find and freeze assets owned by suspected terrorists. The legislation also attempts to uncover money laundering. Depending on the organization and its needs, the financial MIS can include both internal and external systems that assist in acquiring, using, and controlling cash, funds, and other financial resources. These subsystems of the financial MIS have a unique role in adding value to a company's business processes. For example, a real estate development company might use a financial MIS subsystem to help it use and manage funds. Suppose the firm takes $10,000 deposits on con- dominiums in a new development. Until construction begins, the company will be able to invest these surplus funds. By using reports produced by the financial MIS, finance staff can analyze investment alternatives. The company might invest in new equipment or purchase global stocks and bonds. The profits generated from the investment can be passed along to customers in different ways. The company can pay stockholders dividends, buy higher quality materials, or sell the condominiums at a lower cost. Other important financial subsystems include profit/loss and cost accounting, and auditing. Each subsystem interacts with the TPS in a specialized way and has information outputs that assist financial managers in making better decisions. These outputs include profit/loss and cost accounting reports, internal and external auditing reports, and uses and management of funds reports. Two specialized financial functional systems are profit/loss and cost systems, which organize revenue and cost data for the company. Revenue and expense data for various departments is captured by the TPS and becomes a primary internal source of financial information for the MIS. Auditing involves analyzing the financial condition of an organization and determining whether financial statements and reports produced by the financial MIS are accurate. Because financial statements, such as income statements and balance sheets etc used by so many people and organizations (investors, bankers, insurance firms, federal and state government agencies, competitors, and customers), sound auditing procedures are important. Auditing can reveal potential fraud, such as credit card fraud. It can also reveal false or misleading information. Internal auditing is performed by individuals within the organization. For example, the finance department of a corporation may use a team of employees to perform an audit. Another important function of the financial MIS is funds usage and manage ment. Firms that do not manage and use funds effectively often have lower profits or face bankruptcy. To help with the funds usage and management, some banks are backing a new computerized payment system called Straight-Through Processing. “The new system has the potential to clear payments in a day instead 14
  • 19. of several days or more. Outputs from the funds usage and management subsystem, when combined with other subsystems of the financial MIS, can locate serious cash flow problems and help the organization increase profits. Internal uses of funds include additional inventory, new or updated plants and equipment, additional labor, the acquisition of other firms, new computer systems, marketing and advertising, raw materials, land, investments in new products, and research and development. External uses of funds are typically investment related. On occasion, a company might have excess cash from sales that is placed into an external investment. External uses of funds often include bank accounts, stocks, bonds, bills, notes, futures, options, and foreign currency. MANUFACTURING MANAGEMENT INFORMATION SYSTEMS More than any other functional area, manufacturing has been revolutionized by advances in technology. As a result, many manufacturing operations have been dramatically improved over the last decade. Also, with the emphasis on greater quality and productivity, having an efficient and effective manufacturing process is becoming even more critical. The use of computerized systems is emphasized at all levels of manufacturing— from the shop floor to the executive suite. The use of the Internet has also streamlined all aspects of manufacturing. The objective of the manufacturing MIS is to produce products that meet customer needs—from the raw materials provided by suppliers to finished goods and services delivered to customers—at the lowest possible cost. Cunningham Motor Co., for example, is attempting to manufacture a pricey sports coupe with a 600 horsepower engine that sells for about S250, 000. Started by Robert Lutz, a former vice president of Chrysler, the company will not put one penny into manufacturing facilities. As raw materials are converted to finished, goods, the manufacturing MIS monitors the process at almost every stage. New bar codes called smart labels could make this process easier. The smart labels, made of chips and tiny radio transmitters, allow materials and products to be monitored through the entire manufacturing process. Procter & Gamble, Gillette, Wal-Mart, and Target have helped to fund research into this new manufacturing MIS. Car manufacturers, which convert raw steel, plastic, and other materials into a finished automobile, also monitor the manufacturing process. Auto manufacturers add thousands of dollars of value to the raw materials they use in assembling a car. If the manufacturing MIS also lets them provide customized paint colors on any of their models, it has further added value (although less tangible) by ensuring a direct customer fit. In doing so, the MIS helps provide the company the edge that can differentiate it from competitors. The success of an organization can depend on the manufacturing function. Some common information subsystems and outputs used in manufacturing are discussed next. During the early stages of product development, engineering departments are involved in many aspects of design. The size and shape of parts, the way electrical components are attached to equipment, the placement of controls on a product, and the order in which parts are assembled into the finished product are decisions made with the help of design and engineering departments. In some cases, computer-assisted design (CAD) assists this process. CAD can be used to determine how an airplane wing or fuselage will respond to various conditions and stresses while in use. CAD is also used in the automotive industry. The data from design and engineering can also be used to identify problems with existing products and help develop new products. For example, Boeing uses a CAD system to develop a complete digital blueprint of an aircraft before it ever begins its manufacturing 15
  • 20. process. As mock-ups are built and tested, the digital blueprint is constantly revised to reflect the most current design. Using such technology helps Boeing reduce its manufacturing costs and the time to design a new aircraft. Lockheed Martin, a defense contractor, used its design and engineering departments to help obtain a $200 billion contract from the Pentagon to build fighter jets for the military. The Joint Strike Fighter contract, the largest defense contract in history, uses information systems to help design, engineer, and manufacture these sophisticated military jets. Scheduling production and controlling inventory are critical for any manufacturing company. The overall objective of master production scheduling is to provide detailed plans for both short-term and long-range scheduling of manufacturing facilities. Master production scheduling software packages can include forecasting techniques that attempt to determine current and future demand for products and services. After current demand has been determined and future demand has been estimated, the master production scheduling package can determine the best way to use the manufacturing facility and all its related equipment. The result of the process is a detailed plan that reveals a schedule for every item that will be manufactured. An important key to the manufacturing process is inventory control. Great strides have been made in developing cost-effective inventory control programs and software packages that allow automatic reordering, forecasting, generation of shop documents and reports, determination of manufacturing costs, analysis of budgeted costs versus actual costs, and the development of master manufacturing schedules, resource requirements, and plans. A furniture company, for example, uses an approach, called "simple, quick, and affordable (SQA)" to keep inventory levels and costs low. Once an order is received, it is broken down into the inventory parts that are needed to successfully complete the order on time. An SQA Web site is used to make sure that the needed inventory is available to complete the order. Procter & Gamble, which produces consumer products that range from Pampers to Pepto-Bismol, uses quick-response inventory control systems to speed products to market. According to a company spokesman, "A key benefit for consumers is that the products are fresher." In another case, Ford Motor Company decided to use UPS Logistics to help the company speed the delivery of parts to factories and finished cars to dealerships.19 The new inventory control system has reduced by four days the time it typically takes to ship a finished vehicle to a dealership. But more importantly, the new system has also reduced vehicle inventory by about $1 billion, saving the company $125 million in annual inventory carrying costs, which dramatically improves Ford's profitability. Many inventory control techniques like Ford's attempt to minimize inventory related costs. Manufacturing resource planning (MRPII) refers to an integrated, com-panywide system based on network scheduling that enables people to run their business with a high level of customer service and productivity, while lowering costs and inventories. MRPII is broader in scope than MRP; thus, the latter has been dubbed "little MRP." MRPII places a heavy emphasis on planning. This helps firms ensure that the right product is in the right place at the right time. Just-in-time (JIT) inventory and manufacturing is an method that maintains inventory at the lowest levels without sacrificing the availability of finished goods. With this approach, inventory and materials are delivered just before they are used in a product. A JIT inventory system would arrange for a car windshield to be delivered to the assembly line only a few moments before it is secured to the automobile, rather than having it sitting around the manufacturing facility while the car's other 16
  • 21. components are being assembled. Although JIT has many advantages, it also renders firms more vulnerable to process disruptions. Managers can use a number of technologies to control and streamline the manufacturing process. For example, computers can be used to directly control manufacturing equipment, using systems called computer-assisted manufacturing (CAM). CAM systems can control drilling machines, assembly lines, and more. Some of them operate quietly, are easy to program, and have self-diagnostic routines to test for difficulties with the computer system or the manufacturing equipment. Computer-integrated manufacturing (CIM) uses computers to link the components of the production process into an effective system. CIM's goal is bring together production, including order processing, product design, manufacturing, inspection and quality control, and shipping. CIM systems also increase efficiency by coordinating the actions of various production units. In some areas, CIM is used for even broader functions. For example, it can be used to integrate all organizational subsystems, not just the production systems. In automobile manufacturing, design engineers can have their ideas evaluated by financial managers before new components are built to see whether they are economically viable, saving not only time but also money. FMS is normally implemented using computer systems, robotics, and other automated manufacturing equipment. New product specifications are fed into the computer system, and the computer then makes the necessary changes. Although few firms have a fully implemented FMS, recently use of the overall FMS approach has increased. With increased pressure from consumers and a general concern for productivity and high quality, today's manufacturing organizations are placing more emphasis on quality control, a process that ensures that the finished product meets the customers' needs. For a continuous process, control charts are used to measure weight, volume, temperature, or similar attributes. Then, upper and lower control chart limits are established. If these limits are exceeded, the manufacturing equipment is inspected for possible defects or potential problems. When the manufacturing operation is not continuous, sampling can allow the producer or consumer to review and accept or reject one or more products. Acceptance sampling is used for items as simple as nuts and bolts or as complex as airplanes. The development of the control chart limits and the specific acceptance sampling plans can be fairly complex. So, quality-control software programs have been used to generate them. Whether the manufacturing operation is continuous or discrete, the results from quality control are analyzed closely to identify opportunities for improvements. Teams using the total quality management (TQM) or continuous improvement process often analyze this data to increase the quality of the product or eliminate problems in the manufacturing process. The result can be a cost reduction or increase in sales. Information generated from quality-control programs can help workers locate problems in manufacturing equipment. Quality-control reports can also be used to design better products. With the increased emphasis on quality, workers should continue to rely on the reports and outputs from this important application. MARKETING MANAGEMENT INFORMATION SYSTEMS 17
  • 22. A marketing MIS supports managerial activities in product development, distribution, pricing decisions, promotional effectiveness, and sales forecasting. Marketing functions are increasingly being performed on the Internet. A number of firms are developing Internet marketplaces to advertise and sell products. Customer relationship management (CRM) programs, available from some ERP vendors, help a company manage all aspects of customer encounters. CRM software can help a company collect customer data, contact customers, educate customers on new products, and sell products to customers through an Internet site. Crane Engineering, an industrial equipment distributor in Kimberly, Wisconsin, uses CRM to help manage customer interactions. Subsystems for the marketing MIS include marketing research, product development, promotion and advertising, and product pricing. These subsystems and their outputs help marketing managers and executives increase sales, reduce marketing expenses, and develop plans for future products and services to meet the changing needs of customers. Surveys, questionnaires, pilot studies, and interviews are popular marketing research tools. The purpose of marketing research is to conduct a formal study of the market and customer preferences. Marketing research can identify prospects (potential future customers) as well as the features that current customers really want in a good or service (such as green ketchup or vanilla-flavored cola). Such attributes as style, color, size, appearance, and general fit can be investigated through marketing research. Pricing, distribution channels, guarantees and warranties, and customer service can also be determined. Once entered into the marketing Management information systems (MIS), data collected from marketing research projects is manipulated to generate reports on key indicators like customer satisfaction and total service calls. Reports generated by the marketing MIS help marketing managers are better informed to help the organization meet its performance goals. The parts division of Hyundai Motor America, for example, uses marketing research and software to predict the demand for car parts. The software from Demand Management helped the company reduce delivery time for key auto parts by 20 percent. Other firms, including Colgate-Palmolive and Unilever, also use sophisticated software and marketing research data to forecast demand for their products. Demand forecasts for products and services are also critical to make sure raw materials and supplies are properly managed. The Internet is changing the way many firms think about marketing research. Conventional methods of collecting data often cost millions of dollars-For a fraction of these costs, firms can put up Internet information server and launch discussion groups on topics that their customers care about. These information sites must be well designed, or they won't be visited, but a frequently visited site can provide feedback worth a fortune. Firms that are viewed as credible, not just clever, will win enormous advantages. Presence and intelligent interaction, not just advertising, are the keys that will unlock commercial opportunities on-line. Some people, however, consider Internet marketing research to be a nuisance or even harmful. Some firms gather information on customers using cookies, which collect data on people's Internet surfing habits, and sell it to others. Product development involves the conversion of raw materials into finished goods and services and focuses primarily on the physical attributes of the product. Many factors, including plant capacity, labor skills, engineering factors, and materials are important in product development decisions. In many cases, a computer program is used to analyze these various factors and to select the appropriate mix of labor, materials, plant and equipment, and engineering designs. Make-or-buy decisions can also be made with the assistance of computer programs. Faucet maker Moen decided to carry a variety of products with different colors and styles. It concluded that it was not in the business of selling hardware but instead should be selling fashion and jewelry for bathrooms and kitchens. 18
  • 23. One of the most important functions of any marketing effort is promotion and advertising. Product success is a direct function of the types of advertising and sales promotion done. Dole Food Company, for example, promoted its products by putting a $10 electronic incentive on 30 million packages of its Fruit Bowl. The 810 in electronic currency could be spent at seven participating on-line retailers, including Art.com, Cooking.com, Kbkids.com, and SunglassHut.com. The size of the promotion budget and the allocation of this budget among various campaigns are important factors in planning the campaigns that will be launched—everything from placing ads during the Super Bowl to offering coupons in a grocery store. Television coverage, newspaper ads, promotional brochures and literature, and training programs for salespeople are all components of these campaigns. Because of the time and scheduling savings they offer, computer programs are used to set up the original budget and to monitor expenditures and the overall effectiveness of various promotional campaigns. Product pricing is another important and complex marketing function. Retail price, wholesale price, and price discounts must be set. A major factor in determining pricing policy is an analysis of the demand curve, which attempts to determine the relationship between price and sales. Most firms try to develop pricing policies that will maximize total sales revenues—usually a function of price elasticity. If the product is very price sensitive, a reduction in price can generate a substantial increase in sales, which can result in higher revenues. A product that is relatively insensitive to price can have its price substantially increased without a large reduction in demand. Computer programs can help determine price elasticity and various pricing policies, such as supply and demand curves for pricing analysis. Typically, a marketing executive has the ability to make alterations in price on the computer system, which analyzes price changes and their impact on total revenues. The rapid feedback now obtainable through computer communications networks enables managers to determine the results of pricing decisions much more quickly than in the past. This ability facilitates more aggressive pricing strategies, which can be quickly adjusted to meet market needs. One critical pricing decision is when to mark down product prices. Using sophisticated software, ShopKo has been able to reduce the number and amount of price cuts, which has helped increase profitability. Sales analysis is also important to identify products, sales personnel, and customers that contribute to profits and those that do not. Several reports can be generated to help marketing managers make good sales decisions. The sales-by-product report lists all major products and their sales for a period of time, such as a month. This report shows which products are doing well and which ones need improvement or should be discarded altogether. The sales-by-salesperson report lists total sales for each salesperson for each week or month. This report can also be subdivided by product to show which products are being sold by each salesperson. The sales-by-customer report is a tool to use to identify high- and low-volume customers. HUMAN RESOURCE MANAGEMENT INFORMATION SYSTEMS A human resource MIS, also called the personnel MIS, is concerned with activities related to employees and potential employees of the organization. Because the personnel function relates to all other functional areas in the business, human resource MIS plays a valuable role in ensuring organizational success. Some of the activities performed by this important MIS include workforce analy- sis and planning; hiring; training; job and task assignment; and many other personnel-related issues. Personnel issues can include offering new hires attractive stock option and incentive programs. One 19
  • 24. company, for example, offered engineers a two-year lease on a sporty BMW roadster as a signing bonus. An effective human resource MIS will allow a company to keep personnel costs at; a minimum while serving the required business processes needed to achieve corporate goals. One of the first aspects of any human resource MIS is determining personnel and human needs. The overall purpose of this MIS subsystem is to put the right number and kinds of employees in the right jobs when they are needed. Effective human resource planning requires defining the future number of employees needed and anticipating the future supply of people for these jobs. For firms involved with large projects, such as military contractors and large builders, human resource plans can be generated directly from data on current and future-projects. If the human resource plan reveals that additional personnel are required, the next logical step is recruiting and selecting personnel. This subsystem performs one of the most important and critical functions of any organization, especially in service organizations, where employees can define the company's success. Firms seeking new employees often use computers to schedule recruiting efforts and trips and to test potential employees' skills. Some software firms, for example, use computerized testing to determine a person's programming skills and abilities. Management information systems can be used to help rank and select potential employees. For every applicant, the results of interviews, tests, and company visits can be analyzed by the system and printed. This report, called a job applicant review profile, can assist corporate recruiting teams in final selection. Some software programs can even analyze this data to help identify job applicants most likely to stay with the company and perform according to corporate standards. Many firms now use the Internet to screen for job applicants. Applicants use a template to load their resume onto the Internet site. HR managers can then access these resumes and identify applicants they are interested in interviewing. Some jobs, such as programming, equipment repair, and tax preparation, require very specific training. Other jobs may require general training about the organizational culture, orientation, dress standards, and expectations of the organization. Today, many organizations conduct their own training, with the assistance of information systems and technology. Self-paced training can involve computerized tutorials, video programs, and CD-ROM books and materials. Distance learning, where training and classes are conducted over the Internet, is also becoming a viable alternative to more traditional training and learning approaches. This text and supporting material, for example, can be used in a distance-learning environment. When training is complete, employees may be required to take computer-scored tests to reveal their mastery of skills and new material. The results of these tests are usually given to the employee's supervisor in the form of training or skills inventory reports. In some cases, skills inventory reports are used for job placement. For instance, if a particular position in the company needs to be filled, managers might wish to hire internally before they recruit. The skills inventory report would help them evaluate current employees to determine their potential for the position. They can also be part of employee evaluations and determine raises or bonuses. These types of tests, however, must be valid and reliable to avoid mistakes in job placement and bonuses. Technology can also be used to reduce training needs and costs. Buy.com, for example, used Finali and Net Sage to help employees answer customer questions. The Finali and Net Sage products helped Buy.com reduce training and customer service costs by 40 percent. Scheduling people and jobs can be relatively straightforward or extremely complex. For some small service firms, scheduling and job placements are based on which customers walk through the door. Determining the best schedule for flights and airline pilots, placing military recruits into jobs, and 20
  • 25. determining what truck drivers and equipment should be used to transport materials across the country normally require sophisticated computer programs. In most cases, various schedules and job placement reports are generated. Employee schedules are developed for each employee, showing their job assignments over the next week or month. Job placements are often determined based on skills inventory reports, which show which employee might be best suited to a particular job. The last of the major human resource MIS subsystems involves determining wages, salaries, and benefits, including medical payments, savings plans, and retirement accounts. Wage data, such as industry averages for positions, can be taken from the corporate database and manipulated by the human resource MIS to provide wage information and reports to higher levels of management. These reports, called salary surveys, can be used to compare salaries with budget plans, the cost of salaries versus sales, and the wages required for any one department or office. The reports also help show backup of key positions in the company. Wage and salary administration also entails designing retirement programs for employees. Some firms use computerized retirement programs to help employees gain the most from their retirement accounts and options. OTHER MANAGEMENT INFORMATION SYSTEMS In addition to finance, manufacturing, marketing, and human resource MISs, some firms have other functional management information systems. ACCOUNTING Management information systems (MIS) In some cases, accounting works closely with financial management. An accounting MIS performs a number of important activities, providing aggregate information on accounts payable, accounts receivable, payroll, and many other applications. The organization's TPS captures accounting data, which is also used by most other functional information systems. Some smaller firms hire outside accounting firms to assist them with their accounting functions. These outside firms produce reports for the firm using raw accounting data. In addition, many excellent integrated accounting programs, such as QuickBooks, are available for personal computers in small firms. Depending on die needs of the small organization and its personnel's computer experience, using these computerized accounting systems can be a very cost-effective approach to managing information. Geographic Information Systems Increasingly, managers want to see data presented in graphical form. A geographic information system (GIS) is a computer system capable of assembling, storing, manipulating, and displaying geographically referenced information, that is, data identified according to their locations. A GIS enables users to pair maps or map outlines with tabular data to describe aspects of a particular geographic region. For example, sales managers may want to plot total sales for each county in the states they serve. Using a GIS, they can specify that each county be shaded to indicate the relative amount of sales—no shading or light shading represents no or little sales and deeper shading represents more sales. As seen in the "IS Principles in Action" box, a GIS can be invaluable in helping to eradicate a forest pest, prevent forest damage, and save millions of dollars. Because the GIS works with any data represented in tabular form, graphical capability is finding its way into spreadsheets. For example, Excel and Lotus include a mapping tool that lets you plot spreadsheet data as a demographic map. 21
  • 26. Such applications show up frequently in scientific investigations, resource management, and real-estate development planning. Retail, government, and utility organizations are frequent users of GISs. Retail chains, for example, need spatial analysis to determine where potential customers are located and where their competition is. AN OVERVIEW OF DECISION SUPPORT SYSTEMS Decision support systems offer the potential to generate higher profits, lower costs, and better products and services. For example, healthcare organizations use DSSs to track and reduce costs. As with a TPS and an MIS, a DSS should be designed, developed, and used to help an organization achieve its goals and objectives. Decision support systems, although skewed somewhat toward the top levels of management, are used at all levels. To some extent, today's managers at all levels are faced with less structured, non routine problems, but the quantity and magnitude of these decisions increase as a manager rises higher in an organization. Many organizations contain a tangled web of complex rules, procedures, and decisions. DSSs are used to bring more structure to these problems to aid the decision-making process. In addition, because of the inherent flexibility of decision support systems, managers at all levels are able to use DSSs to assist in some relatively routine, programmable decisions in lieu of more formalized management information systems. Decision support systems have a number of characteristics that allow them to be effective management support tools. Of course, not all DSSs work the same— some are small in scope and offer only some of these characteristics. In general, a decision support system can perform the following functions: For instance, advanced database management systems and data warehouses have allowed decision makers to search for information with a DSS even when some data resides in different databases on different computer systems or networks. Managers can get the information they want, presented in a format that suits their needs. Furthermore, output can be displayed on computer screens or printed, depending on the needs and desires of the problem solvers. Today's decision support systems can produce text, tables, line drawings, pie charts, trend lines, and more. By using their preferred orientation, managers can use a DSS to get a better under standing of a situation and to convey this understanding to others. A manager can get more levels of detail when needed by drilling down through data. For example, a manager can get more detailed information for a project—viewing the overall project cost or drilling down and seeing the cost for each phase, activity, and task. Marketing research surveys, for example, can be analyzed in a variety of ways using programs that are part of a DSS. Many of the analytical programs associated with a DSS are actually stand-alone programs, and the DSS brings them together. By supporting all types of decision-making approaches, a DSS gives the decision maker a great deal of flexibility in computer support for decision making. For example, what-if analysis, the process of making hypothetical changes to problem data and observing the impact on the results, can be used to control inventory. Given the demand for products, such as automobiles, the computer can determine the necessary parts and components, including engines, transmissions, windows, and so on. With "what-if" analysis, a manager can make changes to problem data (the number of automobiles needed for next month) and immediately see the impact on the parts requirements. Goal-seeking analysis is the process of determining the problem data required for a given result. For example, a financial manager may be considering an investment with a certain monthly net income, and the manager might have a goal to earn a return of 9 percent on the investment. Goal 22
  • 27. seeking allows the manager to determine what monthly net income (problem data) is needed to have a return of 9 percent (problem result). Some spreadsheets can be used to perform goal-seeking analysis. Simulation is the ability of the DSS to duplicate the features of a real system. In most cases, probability or uncertainties are involved. For example, the mean time between failure and the mean time to repair key components of a manufacturing line can be calculated to determine the impact on the number of products that can be produced each shift. Engineers can use this data to determine which components need to be reengineered to increase the mean time between failures and which components need to have an ample supply of spare parts to reduce the mean time to repair. Drug firms are using simulated trials to reduce the need for human participants and reduce the time and costs of bringing a new drug to market. Drug firms are hoping that this use of simulation will help them identify successful drugs earlier in development. Developers of decision support systems strive to make them more flexible than management information systems and to give them the potential to assist decision makers in a variety of situations. DSSs can assist with all or most problem-solving phases, decision frequencies, and different degrees of problem structure. DSS approaches can also help at all levels of the decision-making process. In this section we investigate these DSS capabilities. The objective of most decision support systems is to assist decision makers with the phases of problem solving. As previously discussed, these phases include intelligence, design, choice, implementation, and monitoring. A specific DSS might support only one or a few phases. Decisions can range on a continuum from one-of-a-kind to repetitive decisions. One-of-a-kind decisions are typically handled by an ad hoc DSS. An ad hoc DSS is concerned with situations or decisions that come up only a few times during the life of the organization; in small businesses, they may happen only once. For example, a company might be faced with a decision on whether to build a new manufacturing facility in another area of the country. Repetitive decisions are addressed by an institutional DSS. An institutional DSS handles situations or decisions that occur more than once, usually several times a year or more. An institutional DSS is used repeatedly and refined over the years. Examples of institutional DSSs include systems that support portfolio and investment deci- sions and production scheduling. These decisions may require decision support numerous times during the year. Between these two extremes are decisions managers make several times, but not regularly or routinely. Highly structured problems are straightforward, requiring known facts and relationships. Semistructured or unstructured problems, on the other hand, are more complex. The relationships among the data are not always clear, the data may be in a variety of formats, and the data is often difficult to manipulate or obtain. In addition, the decision maker may not know the information requirements of the decision in advance. At the core of a DSS are a database and a model base. In addition, a typical DSS contains a dialogue manager, which allows decision makers to easily access and manipulate the DSS and to use common business terms and phrases. Finally, access to the Internet, networks, and other computer-based systems permits the DSS to tie into other powerful systems, including the TPS or 23
  • 28. function-specific subsystems. Internet software agents, for example, can be used in creating powerful decision support systems. The database management system allows managers and decision makers to perform qualitative analysis on the company's vast stores of data in databases, data warehouses, and data marts. A data-driven DSS primarily performs qualitative analysis based on the company's databases. Data-driven DSSs tap into vast stores of information contained in the corporate database, retrieving information on inventory, sales, personnel, production, finance, accounting, and other areas. A database management system can also connect to external databases to give managers and decision makers even more information and decision support. External databases can include the Internet, libraries, government databases, and more. The combination of internal and external database access can give key decision makers a better understanding of the company and its environment. Group Decision Support Systems (GDSS) The DSS approach has resulted in better decision making for all levels of individual users. However, many DSS approaches and techniques are not suitable for a group decision-making environment. Although not all workers and managers are involved in committee meetings and group decision-making sessions, some tactical and strategic-level managers can spend more than half their decision-making time in a group setting. Such managers need assistance with group decision making. A group decision support system (GDSS), also called group support system and computerized collaborative work system, consists of most of the elements in a DSS, plus GDSS software needed to provide effective support in group decision-making settings. Group decision support systems are used in most industries. Architects are increasingly using GDSS to help them collaborate with other architects and builders to help them develop the best plans and to compete for contracts. It is often said that two heads are better than one. When it comes to decision making, a GDSS's unique characteristics have the potential to result in better decisions. Developers of these systems try to build on the advantages of individual support systems while realizing that new and additional approaches are needed in a group decision-making environment. For example, some GDSSs can allow the exchange of information and expertise among people without meetings or direct face-to-face interaction. Many GDSSs allow anonymous input, where the person giving the input is not known to other group members. For example, some organizations use a GDSS to help rank the performance of managers. Anonymous input allows the group decision makers to concentrate on the merits of the input without considering who gave it. In other words, input given by a top-level manager is given the same consideration as input from employees or other members of the group. Some studies have shown that groups using anonymous input can make better decisions and have superior results compared with groups that do not use anonymous input. Anonymous input, however, can result in flaming, where an unknown team member posts insults or even obscenities on the GDSS system. One key characteristic of any GDSS is the ability to suppress or eliminate group behavior that is counterproductive or harmful to effective decision making. In some group settings, dominant individuals can take over the discussion, which can prevent other members of the group from presenting creative alternatives. In other cases, one or two group members can sidetrack or subvert 24
  • 29. the group into areas that are nonproductive and do not help solve the problem at hand. Other times, members of a group may assume they have made the right decision without examining alternatives—a phenomenon called groupthink. With traditional group meetings, people must take turns addressing various issues. One person normally talks at a time. With a GDSS, it is possible for every group member to address issues or make comments at the same time by entering them into a PC or workstation. These comments and issues are displayed on every group member's PC or workstation. Parallel communication can speed meeting times and result in better decisions. Most GDSSs can keep detailed records of a meeting automatically. Each comment that is entered into a group member's PC or workstation can be anonymously recorded. In some cases, literally hundreds of com ments can be stored for future review and analysis. In addition, most GDSS packages have automatic voting and ranking features. After group members vote, the GDSS records each vote and makes the appropriate rankings. GDSS software, often called groupware or workgroup software helps with joint work group scheduling, communication, and management. One popular package, Lotus Notes, can capture, store, manipulate, and distribute memos and communications that are developed during group projects. This software allows users to set up electronic bulletin boards, schedule group meetings, and use e-mail in a group setting. NetDocuments Enterprise was a PC Magazine Editor's Choice for providing Web collaboration. The groupware is intended for legal, accounting, and real-estate businesses. A Breakout Session feature allows two people to take a copy of a document to a shared folder or director for joint revision and work. The software also permits digital signatures and the ability to download and work on shared documents on handheld computers. Other GDSS software packages include Collabra Share, OpenMind, and Team Ware. All of these tools can aid in group decision making. In addition to stand-alone products, GDSS software is increasingly being incorporated into existing software packages. Today, some transaction processing and enterprise resource planning packages include collaboration software. SAP, a popular ERP package discussed has developed mySAP Technology to facilitate collaboration and to allow SAP users to integrate applications from other vendors into the SAP system of programs. EXECUTIVE SUPPORT SYSTEMS Because top-level executives often require specialized support when making strategic decisions, many firms have developed systems to assist executive decision making. This type of system, called an executive support system (ESS), is a specialized DSS that includes all hardware, software, data, procedures, and people used to assist senior-level executives within the organization. In some cases, an ESS, also called an executive information system (EIS), supports the actions of members of the board of directors, who are responsible to stockholders. An ESS can also be used by individuals farther down in the organizational structure. Once targeted at the top-level executive decision makers, ESSs are now marketed to—and used by—employees at other levels in the organization. In the traditional view, ESSs give top executives a means of tracking critical success factors. Today, all levels of the organization share information from the same databases. However, for our discussion, we will assume ESSs remain in the upper management levels, where they indicate important corporate issues, indicate new directions the company may take, and help executives monitor the company's progress. An ESS is a special type of DSS, and, like a DSS, an ESS is designed to support higher-level decision making in the organization. The two systems are, however, different in important ways. DSSs provide 25
  • 30. a variety of modeling and analysis tools to enable users to thoroughly analyze problems—that is, they allow users to answer questions. Following are general characteristics of ESSs:  Tailored to individual executives. ESSs are typically tailored to individual executives; DSSs are not tailored to particular users. An ESS is an interactive, hands-on tool that allows an executive to focus, filter, and organize data and information.  Easy to use. A top-level executive's most critical resource can be his or her time. Thus, an ESS must be easy to learn and use and not overly complex.  Have drill down abilities. An ESS allows executives to drill down into the company to determine how certain data was produced. Drill down allows an executive to get more detailed information if needed.  Support the need for external data. The data needed to make effective top-level decisions is often external—information from competitors, the federal government, trade associations and journals, consultants, and so on. An effective ESS is able to extract data useful to the decision maker from a wide variety of sources including the Internet and other electronic publishing sources such as LexisNexis.  Can help with situations that have a high degree of uncertainty. There is a high degree of uncertainty with most executive decisions. Handling these unknown situations using modeling and other ESS procedures helps top-level managers measure the amount of risk in a decision. • Have a future orientation. Executive decisions are future oriented, meaning that decisions will have a broad impact for years or decades. The information sources to support future-oriented decision making are usually informal—from golf partners to members of social clubs or civic organizations. • Are linked with value-added business processes. Like other information systems, executive support systems are linked with executive decision making about value-added business processes. For instance, executive support systems can be used by car-rental firms to analyze trends. The responsibility given to top-level executives and decision makers brings unique problems and pressures to their jobs. The following is a discussion of some of the characteristics of executive decision making that are supported through the ESS approach. As you will note, most of these are related to an organization's overall profitability and direction. An effective ESS should have the capability to support executive decisions with many of these capabilities, such as strategic planning and organizing, crisis management, and more. One of the key roles of senior executives is to provide a broad vision for the entire organization. This vision includes the organization's major product lines and services, the types of businesses it supports today and in the future, and its overriding goals. ESSs also support strategic planning. Strategic planning involves determining long-term objectives by analyzing the strengths and weaknesses of the organization, predicting future trends, and projecting the development of new product lines. It also involves planning the acquisition of new equipment, analyzing merger possibilities, and making difficult decisions concerning downsizing and the sale of assets if required by unfavorable economic conditions. Top-level executives are concerned with organization structure. For example, decisions concerning the creation of new departments or downsizing the labor force are made by 26
  • 31. top-level managers. Overall direction for staffing decisions and effective communication with labor unions are also major decision areas for top-level executives. ESSs can be employed to help analyze die impact of staffing decisions, potential pay raises, changes in employee benefits, and new work rules. Summary: Even though the technology exists to run TPS applications using on-line processing, it is not done for all applications. For many applications, batch processing is more appropriate and cost-effective. Payroll transactions and billing are typically done via batch processing. An MIS provides managers with information, typically in reports, that support effective decision making and provides feedback on daily operations. Note that business transactions can enter the organization through traditional methods or via the Internet or an extranet connecting customers and suppliers to the firm's transaction processing systems. The MIS uses the data obtained from these sources and processes it into information more usable to managers, primarily in the form of predetermined reports. Decision support systems have a number of characteristics that allow them to be effective management support tools. By supporting all types of decision-making approaches, a DSS gives the decision maker a great deal of flexibility in computer support for decision making. At the core of a DSS are a database and a model base. In addition, a typical DSS contains a dialogue manager, which allows decision makers to easily access and manipulate the DSS and to use common business terms and phrases. A group decision support system (GDSS), also called group support system and computerized collaborative work system, consists of most of the elements in a DSS, plus GDSS software needed to provide effective support in group decision-making settings. Group decision support systems are used in most industries. GDSS software, often called groupware or workgroup software, helps with joint work group scheduling, communication, and management. One popular package, Lotus Notes, can capture, store, manipulate, and distribute memos and communications that are developed during group projects. An ESS is a special type of DSS, and, like a DSS, an ESS is designed to support higher-level decision making in the organization. ESSs also support strategic planning. Strategic planning involves determining long-term objectives by analyzing the strengths and weaknesses of the organiza- tion, predicting future trends, and projecting the development of new product lines. It also involves planning the acquisition of new equipment, analyzing merger possibilities, and making difficult decisions concerning downsizing and the sale of assets if required by unfavorable economic conditions Key words: Information Systems: components of Hardware, Software, Database, Networks and people in an organization. Transaction Processing System: The operation level system. 27